Motion Rollerblades Has Three Product Lines-D, E, and F The Company Is Deciding Whether to Drop Product Line F

question 130

Multiple Choice

Motion Rollerblades has three product lines-D, E, and F. The following information is available: $\begin{array}{|l|l|l|l|} \hline& \mathrm{D} & \mathrm{E} & \mathrm{F} \\\hline \text { Sales revenue } & \$ 90,000 & \$ 40,000 & \$ 31,000 \\\hline \text { Variable costs } & (40,000) & (15,000) & (10,000) \\\hline \text { Contribution margin } & \$ 50,000 & \$ 25,000 & \$ 21,000 \\\hline \text { Fixed costs } & (20,000) & (15,000) & \underline{(23,000) } \\\hline \text { Operating income (loss) } & \$ 30,000 & \$ 10,000 & \$(200) \\\hline\end{array}$
The company is deciding whether to drop product line F because it has an operating loss. Assuming fixed costs are unavoidable, if Motion drops product line F and does not replace it, what effect will this have on operating income?

• A) Operating income will increase $2000.
• B) Operating income will increase $21,000.
• C) Operating income will increase $23,000.
• D) Operating income will decrease $21,000.

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