Faros Hats, Etc Assuming Fixed Costs Remain Unchanged, and That There Would Be

question 74

Multiple Choice

Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow: $$\begin{array} { | l | r | r | r | } \hline & { \text { Total } } & \text { Baseball Helmets } & \text { Football Helmets } \\\hline \text { Sales revenue } & \$ 850,000 & \$ 500,000 & \$ 350,000 \\\hline \text { Variable expenses } & ( 530,000 ) & ( 250,000 ) & ( 280,000 ) \\\hline \text { Contribution margin } & \$ 320,000 & \$ 250,000 & \$ 70,000 \\\text { Fixed expenses } & ( 180,000 ) & ( 90,000 ) & ( 90,000 ) \\\hline \text { Operating income (loss) } & \$ 140,000 & \$ 160,000 & \$ ( 20,000 \\\hline\end{array}$$ Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales. What will be the effect of dropping Football Helmets line on the operating income of the company?

• A) Operating income will increase by $20,000.
• B) Operating income will increase by $90,000.
• C) Operating income will decrease by $70,000.
• D) Operating income will decrease by $350,000.

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