Question

Exercise D8-17 Carla Vista Trivia Co. manufactures and sells two trivia products, the Square Trivia Game and the Round Trivia Game. Last quarter's operating profits, by product, and for the company as a whole, were as follows: Square Round Total $16,700 $6,900 $23,600 Sales revenue Variable expenses 4,530 2,940 7,470 Contribution margin 12,170 3,960 16,130 Fixed expenses Operating income9,360 $(240) $9,120 2,810 4,200 7,010 Forty percent of the Round Game's fixed costs could have been avoided if the game had not been produced or sold. If the Round Game had been discontinued before the last quarter, what would operating income have been for the company as a whole?

Answer 1

Cost Analysis if the Round Game had been discontinued

Contribution margin lost	($3,960)
Add : Savings from avoidable fixed costs ($4,200*40%)	$1,680
Net loss from discontinuing Round Game	($2,280)

If the Round Game had been discontinued, Operating income for the company as a whole decreases by $2,280

Net operating income for the company as a whole = $9,120 - $2,280

= $6,840