DM Corporation Has Provided You with the Following Budgeted Income

question 101

Multiple Choice

DM Corporation has provided you with the following budgeted income statement for one of its products: $$\begin{array} { | l | r | } \hline \text { Sales revenue } & \$ 700,000 \\\hline \text { Variable costs } & ( 430,000 ) \\\hline \text { Contribution margin } & \$ 270,000 \\\hline \text { Fixed costs } & \underline { ( 310,000) } \\\hline \text { Operating loss } & \$ ( 40,000 ) \\\hline\end{array}$$ DM has just encountered environmental problems with the product and will be forced to drop the product line altogether.DM will be able to eliminate 60% of the fixed costs.What will be the impact on operating income of the company?

• A) Operating income will decrease by $186,000.
• B) Operating income will decrease by $84,000.
• C) Operating income will increase by $186,000.
• D) Operating income will increase by $84,000.