Question

Mission Company has three product​ lines: D,​ E, and F. The following information is​ available:

                                                                                                                                                                                        

      D

                                                          

     E

                                                              

     F

Sales revenue                                                                                                       ​$ 80,000                                          ​$44,000                                             ​$23,000

Variable expenses                                                                                 ​$ 41,000                                          ​$22,000                                          ​$16,000

                                                                                                                                                                                        ​$ 39,000                                          ​$22,000                                              ​$ ​ 7,000

Fixed expenses                                             ​$ 12,000                                          ​$15,000                                              ​$17,000

Operating income​ (loss)                                              ​$ 27,000                                          ​$ ​ 7,000 ​ ($10,000)

Mission Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed expenses are unavoidable. Assuming Mission Company discontinues product line F and does not replace​it, what affect will this have on operating​ income?

A.

Decrease​ $7,000

B.

Increase​ $17,000

C.

Increase​ $10,000

D.

Increase​ $7,000

Answer 1

Correct answer------(A) Decrease​ $7,000

	Product Line
	D	E	F
Sales revenue	$ 80,000.00	$   44,000.00
Variable expenses	$ 41,000.00	$   22,000.00
Contribution margin	$ 39,000.00	$   22,000.00	$                   -
Fixed expenses	$ 12,000.00	$   15,000.00	$   17,000.00
Operating Income (Loss)	$ 27,000.00	$      7,000.00	$ (17,000.00)

Net loss on Product line F Before discontinuing Product line F	$ (10,000.00)
Net loss on Product line F After discontinuing Product line F	$ (17,000.00)
Decrease in net income	$      7,000.00

Increase in net loss is equivalent to decrease in net income.