Answer:
Net Operating Income rises by $10,000 when Fashion Boots is discontinued.
Explanation:
Current operating profit for Boots Plus = $45,000
that is $65,000 profit from Hiking and $20,000 losses from Fashion
In case if Fashion boots is discontinued, then fixed cost eliminated = $30,000
In that case Total fixed cost of fashion boots non eliminated = $40,000 - $30,000 = $10,000
Which will be loss from Fashion as no other operating activity will be there.
Net operating profit of the company will be
Profit from Hiking Boots = $65,000
Less: Loss from Fashion Sales = $10,000 (Fixed Cost not eliminated)
Net Operating profit = $65,000 - $10,000 = $55,000
Net Operating Income rises by $10,000 when Fashion Boots is discontinued.
