Answer:
Operating income will increase by $16,000. This is not given as one of the options.
Explanation:
The difference between the sales and variable expense gives the contribution margin. The contribution margin net the fixed cost gives the operating income or loss.
D E F
Sales revenue $90,000 $40,000 $30,000
Variable costs <u>($40,000)</u> <u>($10,000)</u> <u>($10,000)</u>
Contribution margin $50,000 $30,000 $20,000
Fixed costs <u>($10,000) </u> <u>($5,000)</u> <u>($25,000)
</u>
Operating income (loss) $40,000 $25,000 ($5,000)
The total operating income is
= $40,000 + $25,000 + ($5,000)
= $60,000
Should the fixed costs of F be eliminated, the operating income/(loss) of F
= $21,000 - $5,000
= $16,000
This is the net increase in the total operating income.
