Crash Sports, Inc. has two product lineslong dash-batting helmets and football helmets. The income statement data for the most recent year is as follows:

- Total Batting Helmets Football Helmets

Sales revenue $1,050,000 $700,000 $350,000

Variable costs (430,000) (150,000) ( 280,000)

Contribution margin $620,000 $550,000 $70,000

Fixed costs (180,000) (90,000) (90,000)

Operating income (loss) $440,000 $460,000 ($20,000)

If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

Question

Business

Daphne Pineda

6 October, 18:47

Crash Sports, Inc. has two product lineslong dash-batting helmets and football helmets. The income statement data for the most recent year is as follows:

- Total Batting Helmets Football Helmets

Sales revenue $1,050,000 $700,000 $350,000

Variable costs (430,000) (150,000) ( 280,000)

Contribution margin $620,000 $550,000 $70,000

Fixed costs (180,000) (90,000) (90,000)

Operating income (loss) $440,000 $460,000 ($20,000)

If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

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Answers (1)

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Liberty Lamb · Answer 1

It will cause an increase in loss by $10,000

Explanation:

Giving the following information:

Total Batting Helmets Football Helmets

Sales revenue $350,000

Variable costs ( 280,000)

Contribution margin 70,000

Fixed costs (90,000)

Operating income (loss) ($20,000)

$50,000 of fixed costs will be eliminated by dropping the football helmets line

Effect on income = fixed costs savings - operating loss - fixed costs

Effect on income = 50,000 - 20,000 - 40,000 = - 10,000