All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow: Total Cat Food Dog Food Sales revenue $415,000 $330,000 $85,000 Variable expenses $61,000 $21,000 $40,000 Contribution margin $354,000 $309,000 $45,000 Fixed expenses $101,000 $49,000 $52,000 Operating income (loss) $253,000 $260,000 $ (7,000) If $13,000 of fixed costs will be eliminated by discontinuing the Dog food line, how will operating income be affected?

Question

Tyrell Kramer

Business

19 April, 05:35

All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow: Total Cat Food Dog Food Sales revenue $415,000 $330,000 $85,000 Variable expenses $61,000 $21,000 $40,000 Contribution margin $354,000 $309,000 $45,000 Fixed expenses $101,000 $49,000 $52,000 Operating income (loss) $253,000 $260,000 $ (7,000) If $13,000 of fixed costs will be eliminated by discontinuing the Dog food line, how will operating income be affected?

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Answers (1)

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Jerimiah Guerra · Answer 1

The operating income is decreased by $6,000

Explanation:

The effect on operating income is shown below:

= Operating income for cat food - fixed costs of dog food line

= $260,000 - $13,000

= $247,000

And the total operating income is $253,000

So, the effect would be equal to

= Cat food line operating income - total operating income

= $247,000 - $253,000

= - $6,000

The minus amount reflect the decrease in the net income