Faros Hats, Etc - If $50,000 of Fixed Costs Will Be Eliminated by Helmets

question 66

Multiple Choice

Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow: $\begin{array}{|l|r|r|r|} \hline&{\text { Total }} & \text { Baseball Helmets } & \text { Football Helmets } \\\hline \text { Sales revenue } & \$ 850,000 & \$ 500,000 & \$ 350,000 \\\hline \text { Variable expenses } & (530,000 & (250,000 & (280,000 \\\hline \text { Contribution margin } & \$ 320,000 & \$ 250,000 & \$ 70,000 \\\hline \text { Fixed expenses } & (180,000 & (90,000) & (90,000 \\\hline \text { Operating income (loss) } & \$ 140,000 & \$ 160,000 & \$(20,000 \\\hline\end{array}$
- If $50,000 of fixed costs will be eliminated by dropping the Football Helmets line, how will dropping Football Helmets affect the 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:

Matrix Limitation

Constraints or restrictions related to the size, complexity, or operations of a matrix in mathematical or computational contexts.

Series Contacts

Electrical contacts connected in a sequence where the current must flow through all contacts in order, used in circuits and safety systems.

Rung

A group of programmable logic controller instructions that controls an output or storage bit, or performs other control functions such as file moves, arithmetic, and/or sequencer instructions. A rung is represented as one section of a ladder logic diagram.