Question

All About Animals has two product​ lines: Cat food and Dog food. Contribution margin income statement data for the most recent year​ follow: Total Cat Food Dog Food Sales revenue ​$415,000 ​$330,000 ​$85,000 Variable expenses ​$61,000 ​$21,000 ​$40,000 Contribution margin ​$354,000 ​$309,000 ​$45,000 Fixed expenses ​$101,000 ​$49,000 ​$52,000 Operating income​ (loss) ​$253,000 ​$260,000 ​$(7,000) If​ $13,000 of fixed costs will be eliminated by discontinuing the Dog food​ line, how will operating income be​ affected?

Answer 1

Answer:

The operating income is decreased by $6,000

Explanation:

The effect on operating income is shown below:

= Operating income for cat food - fixed costs of dog food line

= $260,000 - $13,000

= $247,000

And the total operating income is $253,000

So, the effect would be equal to

= Cat food line operating income - total operating income

= $247,000 - $253,000

= - $6,000

The minus amount reflect the decrease in the net income