The Income Statement for Sweet Dreams Company Is Divided by Its

question 113

Multiple Choice

The income statement for Sweet Dreams Company is divided by its two product lines, blankets and pillows, as follows:
$\begin{array}{|l|r|r|r|}\hline& \text { Blankets } & \text { Pillows } & \text { Total } \\\hline \text { Sales revenue } & \$ 620,000 & \$ 300,000 & \$ 920,000 \\\hline \text { Variable expenses } & 465,000 & 240,000 & 705,000 \\\hline \text { Contribution margin } & 155,000 & 60,000 & 215,000 \\\hline \text { Fixed expenses } & 76,000 & 76,000 & 152,000 \\\hline \text { Operating income (loss) } & \$ 79,000 & \$(16,000) & \$ 63,000 \\\hline\end{array}$

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Sweet Dreams is considering eliminating the pillow product line. If they do so, they will be able to eliminate $76,000 of total fixed costs. In that event, how would that business decision impact operating income?

• A) Increase $76,000
• B) Decrease $60,000
• C) Increase $42,000
• D) Increase $16,000

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Definitions:

Neural Maturation

The process of growth and development of the nervous system, especially in terms of complexity and efficiency of neural pathways.

Nurture

The influence of environmental factors like education, culture, and personal experiences on the growth and development of an individual.

Accelerate

To increase speed, cause faster movement, or hasten development or progress.

Perceptual Abilities

Human capabilities related to the interpretation of sensory information to understand the environment.