Faros Hats,Etc Assuming the Football Helmets Line Is Dropped,total Fixed Costs Remain

question 29

Multiple Choice

Faros Hats,Etc.has two product lines-baseball helmets and football helmets.Income statement data for the most recent year follow:
$$\begin{array} { | l | l | l | l | } \hline &{ \text { Total } } & { \text { Baseball Helmets } } &{ \text { Football Helmets } } \\\hline \text { Sales revenue } & \$ 950,000 & \$ 600,000 & \$ 350,000 \\\hline \text { Variable expenses } & ( 440,000 ) & ( 150,000 ) & ( \underline { 290,000 ) } \\\hline \text { Contribution margin } & \$ 510,000 & \$ 450,000 & \$ 60,000 \\\hline \text { Fixed expenses } & ( 162,000 ) & ( 70,000 ) & ( 92,000 ) \\\hline \text { Operating profit (loss) } & \$ 348,000 & \$ 380,000 & ( \$ 32,000 ) \\\hline\end{array}$$
Assuming the Football Helmets line is dropped,total fixed costs remain unchanged and the space formerly used to produce the line is rented for $100,000 per year,how will operating profit be affected?

• A) Operating profit will decrease by $40,000.
• B) Operating profit will increase by $40,000.
• C) Operating profit will increase by $60,000.
• D) Operating profit will decrease by $60,000.

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Definitions:

Sampling Error

The error that arises from estimating a population parameter based on a sample rather than the entire population.

Sample Statistic

A numerical measure calculated from a sample of data, used to estimate a population parameter.

Population Parameter

A numerical value that represents a characteristic of a population.

One-tailed Test

A statistical test that determines the direction of a relationship, testing either for a positive or negative effect but not both.