Sahara Industries Has Three Product Lines: A,B and C Sahara Industries Is Thinking About Dropping Product C Because It

question 16

Multiple Choice

Sahara Industries has three product lines: A,B and C.The following annual information is available:
$\begin{array}{llll}&\text { Product A }&\text { Product B }&\text { Product C }\\\text { Sales } & \$ 100,000 & \$ 90,000 & \$ 88,000 \\\text { Variable costs } & 76,000 & 48,000 & 79,000\\\text { Contribution margin } & 24,000 & 42,000 & 9,000 \\\text { Avoidable fixed costs } & 9,000 & 18,000 & 3,000 \\\text { Unavoidable fixed costs } & 6,000 & 9,000 & 9,400\\\text { Operating income(loss) }&\$9,000&\$15,000&\$(3,400) \end{array}$
Sahara Industries is thinking about dropping Product C because it is reporting a loss.Assume Sahara Industries drops Product C and the space formerly used to produce Product C is rented out for $15,000 per year.What will happen to operating income?

• A) increase by $6,600
• B) increase by $9,000
• C) increase by $14,400
• D) increase by $15,000

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