Motion Rollerblades Has Three Product Lines-D,E,and F The Company Is Deciding Whether to Drop Product Line F

question 129

Multiple Choice

Motion Rollerblades has three product lines-D,E,and F.The following information is available: $$\begin{array} { | l | c | c | c | } \hline & \text { D } & \text { E } & \text { F } \\\hline \text { Sales revenue } & \$ 90,000 & \$ 50,000 & \$ 31,000 \\\hline \text { Variable costs } & ( 40,000 ) & ( 15,000 ) & ( 12,000 ) \\\hline \text { Contribution margin } & \$ 50,000 & \$ 35,000 & \$ 19,000 \\\hline \text { Fixed costs } & ( 15,000 & \underline { ( 10,000 ) } & \underline { ( 23,000 ) } \\\hline \text { Operating income (loss) } & \$ 35,000 & \$ 25,000 & \$ ( 4000 ) \\\hline\end{array}$$ The company is deciding whether to drop product line F because it has an operating loss.Assuming fixed costs are unavoidable,if Motion drops product line F and does not replace it,what effect will this have on operating income?

• A) Operating income will increase $4000.
• B) Operating income will increase $19,000.
• C) Operating income will increase $23,000.
• D) Operating income will decrease $19,000.