Shine Bright Company Has Three Product Lines-D, E, and F

question 40

Multiple Choice

Shine Bright Company has three product lines-D, E, and F. The following information is available:
$$\begin{array} { | l | r | r | r | } \hline & \text { D } & \text { E } &{ \text { F } } \\\hline \text { Sales } & \$ 60,000 & \$ 38,000 & \$ 26,000 \\\hline \text { Variable costs } & 36,000 & 18,000 & 12,000 \\\hline \text { Contribution margin } & 24,000 & 20,000 & 14,000 \\\hline \text { Fixed Experses } & 12,000 & 15,000 & 16,000 \\\hline \text { Operating income (loss) } & \$ 12,000 & \$ 5,000 & \$ ( 2,000 ) \\\hline\end{array}$$
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Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Shine Bright Company drops product line F and does not replace it, what effect will this have on operating income?

• A) Operating income will increase $2,000.
• B) Operating income will increase $14,000.
• C) Operating income will increase $16,000.
• D) Operating income will decrease $14,000.

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Definitions:

Saving

The portion of income not spent on consumption, often set aside for future investments or expenditures.

Disposable Income

The amount of money individuals or households have available to spend or save after taxes have been accounted for.

Saving

The portion of income that is not spent on consumption but instead is set aside for future use or investment.

Disposable Income

Income left for households to direct into savings and spending after deductions of income taxes.