Protector,Inc Assuming the Football Helmets Line Is Dropped,total Fixed Costs Remain

question 186

Multiple Choice

Protector,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $\begin{array}{|l|r|r|r|}\hline &\text { Total } & \text { Batting Helmets } & \text { Football Helmets }\\\hline \text { Sales revenue } & \$ 930,000 & \$ 600,000 & \$ 330,000 \\\hline \text { Variable costs } & \underline{(540,000) } & \underline{(250,000) } & \underline{(290,000) }_{} \\\hline \text { Contribution margin } & \$ 390,000 & \$ 350,000 & \$ 40,000 \\\hline \text { Fixed costs } & \underline{(160,000) } & \underline{(70,000) } & \underline{(90,000) }_{} \\\hline \text { Operating income (loss) } & \underline{\$ 230,000} & \underline{\$ 280,000 }& \underline{\$(50,000) }_{_{}} \\\hline\end{array}$ Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $100,000 per year,how will operating income be affected?

• A)Operating income will increase by $60,000.
• B)Operating income will increase by $40,000.
• C)Operating income will decrease by $40,000.
• D)Operating income will decrease by $60,000.

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Definitions:

Bodily Needs

Basic physiological requirements for human survival, such as food, water, shelter, and sleep.

Reciprocity

The practice of exchanging things with others for mutual benefit, especially in social and emotional contexts.

Arousal Theory

A theory in psychology that proposes individuals are motivated to maintain an optimal level of arousal.

Optimal Level

The most favorable or desirable degree of efficiency, concentration, or condition for a particular process or function.