Castillo Corporation Has Provided You with the Following Budgeted Income

question 192

Multiple Choice

Castillo Corporation has provided you with the following budgeted income statement for one of its products: $\begin{array}{|l|r|}\hline\text { Sales revenue } & \$ 700,000 \\\hline \text { Variable costs } & (430,000) \\\hline \text { Contribution margin } & \$ 270,000 \\\hline \text { Fixed costs } & \underline{(320,000} \\\hline \text { Operating loss } & \$(50,000 \\\hline\end{array}$ Castillo has just encountered environmental problems with the product and will be forced to drop the product line altogether.Castillo will be able to eliminate 60% of the fixed costs.What will be the impact on operating income of the company?

• A) Operating income will decrease by $192,000.
• B) Operating income will decrease by $78,000.
• C) Operating income will increase by $192,000.
• D) Operating income will increase by $78,000.

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