Sherman Hats,Inc Assuming the Football Helmets Line Is Dropped,total Fixed Costs Remain

question 11

Multiple Choice

Sherman Hats,Inc.has two product lines-batting helmets and football helmets.The income statement data for the most recent year is as follows: $$\begin{array} { | l | r | r | r | } \hline &{ \text { Total } } & \text { Batting Helmets } & \text { Football Helmets } \\\hline \text { Sales revenue } & \$ 930,000 & \$ 600,000 & \$ 330,000 \\\hline \text { Variable costs } & \underline { ( 550,000 } & \underline { ( 250,000 ) } & ( 300,000 ) \\\hline \text { Contribution margin } & \$ 380,000 & \$ 350,000 & \$ 30,000 \\\hline \text { Fixed costs } & ( 172,000 & ( 80,000 ) & ( 92,000 ) \\\hline \text { Operating income (loss) } & \$ 208,000 & \$ 270,000 & \$ ( 62,000 ) \\\hline\end{array}$$ Assuming the football helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $110,000 per year,how will operating income be affected?

• A)Operating income will increase by $80,000.
• B)Operating income will increase by $30,000.
• C)Operating income will decrease by $30,000.
• D)Operating income will decrease by $80,000.

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Definitions:

Sympathetic Nervous System

The part of the autonomic nervous system that prepares the body for action by accelerating heartbeat and increasing blood pressure.

Physiological Reactions

Involuntary bodily responses to stimuli, including changes in heart rate, breathing, perspiration, etc., often driven by the autonomic nervous system.

Palms Sweat

The phenomenon of increased perspiration on the palms typically triggered by anxiety, nervousness, or high temperatures.

Emotional Arousal

The condition of being emotionally stimulated or excited, which can affect both cognitive processes and physical states.