The Income Statement for Bedtime Company Is Divided by Its

question 79

Multiple Choice

The income statement for Bedtime Company is divided by its two product lines,blankets and pillows,as follows: $$\begin{array} { | l | r | r | r | } \hline &{ \text { Blankets } } & \text { Pillows } & \text { Total } \\\hline \text { Sales revenue } & \$ 640,000 & \$ 298,000 & \$ 938,000 \\\hline \text { Variable costs } & ( 465,000 ) & ( 242,000 ) & ( 707,000 ) \\\hline \text { Contribution margin } & \$ 175,000 & \$ 56,000 & \$ 231,000 \\\hline \text { Fixed costs } & ( 74,000) & \underline { ( 74,000 ) } & ( 148,000 ) \\\hline \text { Operating income (loss) } & \$ 101,000 & \$ ( 18,000 ) & \$ 83,000 \\\hline\end{array}$$ Bedtime is considering eliminating the pillows product line.If this line is eliminated,Bedtime will be able to eliminate $72,000 of total fixed costs.How would this business decision impact operating income?

• A) increase of $72,000 in operating income
• B) decrease of $56,000 in operating income
• C) increase of $130,000 in operating income
• D) increase of $16,000 in operating income

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