Macaulay Company Has Three Product Lines-D, E, and F Macaulay Company Is Thinking of Dropping Product Line F Because

question 34

Multiple Choice

Macaulay Company has three product lines-D, E, and F. The following information is available: $\begin{array}{|l|c|c|c|} \hline& \text { D } & \text { E } & \text { F } \\\hline \text { Sales } & \$ 70,000 & \$ 40,000 & \$ 30,000 \\\hline \text { Variable costs } & (40,000) & (20,000) & (10,000) \\\hline \text { Contribution margin } & 30,000 & 20,000 & 20,000 \\\hline \text { Fixed expenses } & (15,000) & (15,000) & (25,000) \\\hline \text { Operating income (loss) } & \$ 15,000 & \$ 5,000 & (\$ 5,000) \\\hline\end{array}$ Macaulay Company is thinking of dropping product line F because it is reporting an operating loss.
- Assume that $15,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?

• A) Operating income will increase by $25,000.
• B) Operating income will increase by $20,000.
• C) Operating income will decrease by $5,000.
• D) Operating income will decrease by $15,000.

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