Homework Answers
| Current situation | |||||||
| Description | Model | Model | Model | Total | |||
| D | E | F | |||||
| Sales revenue | $ 70,000 | $ 36,000 | $ 24,000 | $ 130,000 | |||
| Variable expense | $ 32,000 | $ 13,000 | $ 14,000 | $ 59,000 | |||
| Contribution margin | $ 38,000 | $ 23,000 | $ 10,000 | $ 71,000 | |||
| Fixed expense | $ 19,000 | $ 19,000 | $ 19,000 | $ 57,000 | |||
| Operating income/(loss) | $ 19,000 | $ 4,000 | $ (9,000) | $ 14,000 | |||
| Proposed situation- discontinue Model F and rent the space | |||||||
| Description | Model | Model | Model | Renting | Total | ||
| D | E | F | |||||
| Sales revenue | $ 70,000 | $ 36,000 | $ - | $ 16,000 | $ 122,000 | ||
| Variable expense | $ 32,000 | $ 13,000 | $ - | $ 45,000 | |||
| Contribution margin | $ 38,000 | $ 23,000 | $ - | $ 16,000 | $ 77,000 | ||
| Fixed expense | $ 19,000 | $ 19,000 | $ 19,000 | $ - | $ 57,000 | ||
| Operating income/(loss) | $ 19,000 | $ 4,000 | $ (19,000) | $ 16,000 | $ 20,000 | ||
| As we can see that the operating income will increase from $ 14,000 to $ 20,000 i.e. increase by $ 6,000 | |||||||
| Hence option A is correct. | |||||||
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