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

question 164

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. Assume that $8,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?

• A) Operating income will increase $3,000.
• B) Operating income will increase $15,000.
• C) Operating income will decrease $6,000.
• D) Operating income will decrease $3,000.

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