Answer:
Effect on income= $25,000 increase
Explanation:
Giving the following information:
Sales $750,000
Variable production costs $450,000
Sales commissions 110,000
Salary of product manager 95,000
Fixed product advertising 80,000
Fixed manufacturing overhead 70,000
Net operating loss ($55,000)
Assume that dropping Product G would result in a $40,000 increase in the contribution margin of other product lines.
We need to calculate the effect of dropping Product G.
Effect on income= - Net operating loss + increase in contribution margin - fixed overhead costs
Effect on income= 55,000 + 40,000 - 70,000= 25,000 increase
