Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $ 490 comma 000 $ 350 comma 000 $140,000 Variable expenses 385 comma 000 265 comma 000 120,000 Contribution margin 105 comma 000 85 comma 000 20,000 Fixed expenses 80 comma 000 40 comma 000 40 comma 000 Operating income (loss) $25 comma 000 $ 45 comma 000 $ (20 comma 000) If $ 29 comma 000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected?

Question

Business

Marilyn Gutierrez

14 March, 13:52

Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $ 490 comma 000 $ 350 comma 000 $140,000 Variable expenses 385 comma 000 265 comma 000 120,000 Contribution margin 105 comma 000 85 comma 000 20,000 Fixed expenses 80 comma 000 40 comma 000 40 comma 000 Operating income (loss) $25 comma 000 $ 45 comma 000 $ (20 comma 000) If $ 29 comma 000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected?

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Desirae Richardson · Answer 1

Effect on income = $9,000 increase

Explanation:

Giving the following information:

Fashion:

Contribution margin = 20,000

Fixed expenses = 40,000

Operating income (loss) = (20,000)

$29,000 of fixed costs will be eliminated by discontinuing the Fashion line.

We need to determine the effect on income if the Fashion line is discontinued.

Effect on income = avoidable fixed costs + operating income

Effect on income = 29,000 - 20,000 = $9,000 increase