Crash Sports, Inc. has two product lineslong dashbatting helmets and football helmets. The income statement data for the most recent year is as follows: Total Batting Helmets Football Helmets Sales revenue $ 850 comma 000 $ 500 comma 000 $ 350 comma 000 Variable costs (480 comma 000 ) (200 comma 000 ) (280 comma 000 ) Contribution margin $ 370 comma 000 $ 300 comma 000 $ 70 comma 000 Fixed costs (160 comma 000 ) (70 comma 000 ) (90 comma 000 ) Operating income (loss) $ 210 comma 000 $ 230 comma 000 $ (20 comma 000 ) If $ 50 comma 000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company

The operating income of the company is reduced by $20,000

Explanation:

Provided information, we have,

Particulars Total Batting Helmet Football Helmet

Sales Revenue $850,000 $500,000 $350,000

Variable Cost ($480,000) ($200,000) ($280,000)

Contribution $370,000 $300,000 $70,000

Fixed Costs ($160,000) ($70,000) ($90,000)

Operating income $210,000 $230,000 ($20,000)

Since there is a loss in football helmets if there, production is stopped, then fixed cost will be eliminated up-to $50,000 of that product.

in that case total operating profit will be as follows:

Operating profit from Batting helmets = $230,000

Less: unavoidable fixed cost of Football helmet = ($90,000 - $50,000) = ($40,000)

Net operating profit = $190,000

Since, current net operating income = $210,000

The operating income of the company is reduced by $20,000 and therefore, the production of football helmets shall not be dropped.