Question

Suppose with him is considering discontinuing it Mello times product line assume that during the past year at the mellows charm product line income statement showed the following:

if the company decides to discontinue the product line what will happen to the companies operating income?

I S uestion Help o What is considering o g Cireboon to view the com m ent the company decides to continue the product line, wh wing product line. Asume during the past year, the low charme product income statement show the ache con for additional formation e pen to the company's operating income? Should Wher e .continue the low charms product in Data Table Les Costawid Lo Ones Operating in Prepare to show how the core malow charms productie wilt Whispering income Enter a nan allow Charms is disconti ad cost savings Operating income or any or in the input and then

Answer 1

First, we need to separate the fixed and variable costs cogs- cost of goods solda $ 6,450,000 × 40% = $2,580,000 fixed manufacturing costs $ 6,450,000 x 60% = $3,870,000 vanable manu jauturing costs operating expenses $ 1,600,000 × 30% = $ 480,000 of fixed operating costs $1,600,000 70% = $1, 120,000 of variable operating costs contribution margin income statement sales revenue $ 7,600,000 LOSSVariable expenses $ 4,990,000 [$ 3,870,000 + $ 2, 120,000 contribution margin $2,610,000 Lesse fixed expenses $ 3,060,000 ($ 2,580,000 + $ 480,000) operating incomel (loss) ($450,000) • • o . Expected decrease in revenue $76,00,000 Expected decrease in expense: variable expenses ( $3870000 + $ 1120,000 $4,990,000 Avoidable fixed expenses $ 780,000 Experted decrease in total expense $5,770,000 Expected in sease (decrease) in $ 1,830,000 operating income [ $ 76,00,000 - $5,770,000] Ik wheatum dis continue the mallow charm line, it will loss $1,830,000 of operating income. Therefore wheatum should not discontinue this product line.