Crash Sports,Inc If $50,000 of Fixed Costs Will Be Eliminated by Dropping

question 55

Multiple Choice

Crash Sports,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $\begin{array}{|l|r|r|r|}\hline& \text { Total } & \text { Batting Helmets } & \text { Football Helmets } \\\hline \text { Sales revenue } & \$ 1,050,000 & \$ 700,000 & \$ 350,000 \\\hline \text { Variable costs } & \underline{(430,000) } & \underline{(150,000) } & \underline{(280,000) }_{} \\\hline \text { Contribution margin } & \$ 620,000 & \$ 550,000 & \$ 70,000 \\\hline \text { Fixed costs } & \underline{(180,000} & \underline{(90,000) } & \underline{(90,000}_{} \\\hline \text { Operating income (loss) } & \underline{\$ 440,000} & \underline{\$ 460,000} & \underline{\$(20,000) }_{} \\\hline\end{array}$ If $50,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

• A)Operating income will increase by $50,000.
• B)Operating income will increase by $70,000.
• C)Operating income will decrease by $90,000.
• D)Operating income will decrease by $20,000.

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Definitions:

Pay Differentials

Variations in compensation among employees, often based on factors like job role, experience, education, location, or performance.

Equal Pay Act

A law aimed at eliminating wage disparity based on gender, ensuring that men and women receive equal pay for equal work.

Geographic Location

The specific physical place where something exists, including aspects like climate, landscape, and accessibility, which can influence various outcomes and decisions.

Job Evaluation Pay Rates

A systematic process for determining the relative worth of a job within an organization for the purpose of establishing fair salary levels.