Michael's Hats,Inc If $90,000 of Fixed Costs Will Be Eliminated by Dropping

question 106

Multiple Choice

Michael's Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } \hline & { \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \\\hline \text { Sales revenue } & \$ 900,000 & \$ 500,000 & \$ 400,000 \\\hline \text { Variable costs } & ( 480,000 & \underline { ( 200,000 ) } & ( 280,000 ) \\\hline \text { Contribution margin } & \$ 420,000 & \$ 300,000 & \$ 120,000 \\\hline \text { Fixed costs } & ( 230,000 & ( 80,000 ) & ( 150,000 ) \\\hline \text { Operating income (loss) } & \$ 190,000 & \$ 220,000 & \$ ( 30,000 ) \\\hline\end{array}$$ If $90,000 of fixed costs will be eliminated by dropping the football helmets line,how will dropping football helmets affect operating income of the company?

• A)Operating income will increase by $90,000.
• B)Operating income will increase by $120,000.
• C)Operating income will decrease by $150,000.
• D)Operating income will decrease by $30,000.

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Definitions:

Metastasis

The process by which cancer cells spread from the original site to other parts of the body, forming new tumors.

Malignancy

Refers to the presence and growth of cancer cells that have the potential to spread from their origin to other parts of the body.

Malignant Tumors

Cancerous growths that have the potential to invade or spread to other parts of the body.

Benign Tumors

Non-cancerous growths in the body that do not invade nearby tissue or spread to other parts of the body.