Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $480,000 $340,000 $140,000 Variable expenses 355,000 235,000 120,000 Contribution margin 125,000 105,000 20,000 Fixed expenses 76,000 38,000 38,000 Operating income (loss) $49,000 $67,000 $ (18,000) If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected for the company as a whole

The operating income will increase by $ 25000. The new net profit would be $ 92000.

Explanation:

Boots Plus

Income Statement

Total Hiking Fashion

Sales revenue $480,000 $340,000 $140,000

Variable expenses 355,000 235,000 120,000

Contribution margin 125,000 105,000 20,000

Fixed expenses 76,000 38,000 38,000

Operating income (loss) $49,000 $67,000 $ (18,000)

If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, the new income statement will be as follows

Boots Plus

Income Statement

Hiking

Sales revenue $340,000

Variable expenses 235,000

Contribution margin 105,000

Fixed expenses 13000 = 38,000 - $ 25000

Operating income (loss) $92,000

The operating income will increase by $ 25000. The new net profit would be $ 92000.