DM Company Has Provided You with the Following Budgeted Income

question 98

Multiple Choice

DM Company has provided you with the following budgeted income statement for one of their products:
$$\begin{array} { | l | l | } \hline \text { Sales } & \$ 700,000 \\\hline \text { Variable expenses } & ( 430,000 ) \\\hline \text { Contribution margin } & \$ 270,000 \\\hline \text { Fixed expenses } & ( 300,000 ) \\\hline \text { Operating loss } & ( \$ 30,000 ) \\\hline\end{array}$$
DM has just encountered environmental problems with the product and will be forced to drop the product line altogether.They will be able to eliminate 75% of the fixed expenses.What will be the impact on operating profit of the company?

• A) Operating profit will decrease by $225,000.
• B) Operating profit will increase by $225,000.
• C) Operating profit will increase by $45,000.
• D) Operating profit will decrease by $45,000.