Crash Sports, Inc. has two product lineslong dash—batting helmets and football helmets. The income statement data for the most recent year is as follows:
- Total Batting Helmets Football Helmets
Sales revenue $1,050,000 $700,000 $350,000
Variable costs (430,000) (150,000) (280,000)
Contribution margin $620,000 $550,000 $70,000
Fixed costs (180,000) (90,000) (90,000)
Operating income (loss) $440,000 $460,000 ($20,000)
If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

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facundobuzzetti facundobuzzetti · Answer 1 · 2019-11-14T14:45:53+01:00

Answer:

It will cause an increase in loss by $10,000

Explanation:

Giving the following information:

Total Batting Helmets Football Helmets

Sales revenue $350,000

Variable costs (280,000)

Contribution margin 70,000

Fixed costs (90,000)

Operating income (loss) ($20,000)

$50,000 of fixed costs will be eliminated by dropping the football helmets line

Effect on income= fixed costs savings - operating loss - fixed costs

Effect on income= 50,000 - 20,000 - 40,000= -10,000