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6 October, 11:42

Crash Sports, Inc. has two product lineslong dashbatting helmets and football helmets. The income statement data for the most recent year is as follows: Total Batting Helmets Football Helmets Sales revenue $ 850 comma 000 $ 500 comma 000 $ 350 comma 000 Variable costs (480 comma 000 ) (200 comma 000 ) (280 comma 000 ) Contribution margin $ 370 comma 000 $ 300 comma 000 $ 70 comma 000 Fixed costs (160 comma 000 ) (70 comma 000 ) (90 comma 000 ) Operating income (loss) $ 210 comma 000 $ 230 comma 000 $ (20 comma 000 ) If $ 50 comma 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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  1. 6 October, 12:09
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    The operating income of the company is reduced by $20,000

    Explanation:

    Provided information, we have,

    Particulars Total Batting Helmet Football Helmet

    Sales Revenue $850,000 $500,000 $350,000

    Variable Cost ($480,000) ($200,000) ($280,000)

    Contribution $370,000 $300,000 $70,000

    Fixed Costs ($160,000) ($70,000) ($90,000)

    Operating income $210,000 $230,000 ($20,000)

    Since there is a loss in football helmets if there, production is stopped, then fixed cost will be eliminated up-to $50,000 of that product.

    in that case total operating profit will be as follows:

    Operating profit from Batting helmets = $230,000

    Less: unavoidable fixed cost of Football helmet = ($90,000 - $50,000) = ($40,000)

    Net operating profit = $190,000

    Since, current net operating income = $210,000

    The operating income of the company is reduced by $20,000 and therefore, the production of football helmets shall not be dropped.
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