Suppose Cool Rays Is Considering Dropping Its Tinted Lens Product

question 162

Essay

Suppose Cool Rays is considering dropping its Tinted Lens product line.Assume that during the past year,the Tinted Lens product line income statement showed the following:

Fixed manufacturing overhead costs account for 40% of the cost of goods,while only 30% of the operating expenses are fixed.Since the Tinted Lens line is only one of Cool Rays product lines,only $365,000 of direct fixed costs (the majority of which is advertising)will be eliminated if the product line is discontinued.The remainder of the fixed costs will still be incurred by Cool Rays.If the company decides to drop the product line,what will happen to the company's operating income? Should Cool Rays drop the product line?

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Definitions:

Cancellous Bone

Also known as trabecular or spongy bone, this type of bone tissue is characterized by a honeycomb structure and is found at the ends of long bones, within the spinal vertebrae, and in the pelvic bones.

Blood Cells

The cells that circulate in the blood, including red blood cells (erythrocytes), white blood cells (leukocytes), and platelets.

Scapula

The flat, triangular bone in the back of the shoulder, also known as the shoulder blade, which connects the humerus (upper arm bone) with the clavicle (collar bone).

Radius

One of the two long bones in the forearm, extending from the elbow to the wrist, it plays a crucial role in the movement and stabilization of the forearm and hand.