Answer:
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.
