Question

Your Retail Store's accountant prepared the following income statement for the ladie line Sales Less Vadable expenses $3,050,000 433,500 1616 500 Contribution margin Less: Fixed expenses: Wages Insurance on inventory Advertising $1,098,000 61,000 671.000 1830,000 $ (213,500) Net operating income (loss) Management is concerned about the loss and is considering dropping the product line. If the product line is cropped, a job has to be created elsewhere for a long-term employee currently earning an annual salary of $91 500 Required: Calculate the increase or decrease in the operating income in both alternatives. Keep Accesories Product Drop Accesories Product Line $ 3,050,000 1,433,500 $ 1,616,500 $ 30,500,000 1,433 500 $ 1616,500 Sales Less: Variable expenses Contribution margin Fixed expenses TIHH Less Wages expenses Add Insurance on inventory expenses Add Advertising expenses Net operating come downloader X 1,006,500 61000 671,000 11.880,000 67100011 111.738,500 IS213500.00 122.000 Formulared coloridor correct na paleta de cocted

Answer 1

	Keep		Drop
Sales		$ 3,050,000.00		$ 3,050,000.00
Less: Variable Cost		$ 1,433,500.00		$ 1,433,500.00
Contribution margin		$ 1,616,500.00		$ 1,616,500.00
Fixed expenses
Less: Wages expenses	$ 1,098,000.00		$                91,500.00
Less: Insurance on inventory	$      61,000.00		$                             -
Less: Advertising	$    671,000.00	$ 1,830,000.00	$                             -	$      91,500.00
		$  (213,500.00)		$ 1,525,000.00