Answer:
The missing part of the question is found below:
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 $480,000 $340,000 $140,000
Variable expenses 355,000 235,000 120,000
Contribution margin 125,000 105,000 20,000
Fixed expenses 76,000 38,000 38,000
Operating income (loss) $49,000 $67,000 $(18,000)
Answer
By discontinuing fashion line of business operating income would increase by $5,000
Explanation:
The impact of eliminating Fashion line is evident in the revised Income statement below:
Hiking
Sales revenue $340,000
Variable expenses ($235,000)
Contribution margin 105,000
Fixed expenses($76,000-$25,000) ($51,000)
Operating income $54,000
By discontinuing the fashion line of business,the operating income would increase by $5,000 ($54,000-$49,000) from $49,000 when operating the two lines of business to $54,000 when fashion is closed up.
The most appropriate action is to concentrate on the hiking line which might mean that Boots plus has a competitive edge in the Hiking business sector.
