Question

Mission Company is thinking of discontinuing product line F because it is reporting an operating loss. All fixed costs are unavoidable. Mission Company discontinues product line F and rents the space formerly used to produce product F for $21,000 per year, what affect will this have on operating income?

Answer 1

Answer:

Operating income will decrease.

Explanation:

The company's operating income is dependent on the production lines and in the short run the company might be cutting its expenses and losses by shutting down the production line but cutting a part of the company which can produce revenue is never a solution rather the company checks how they can cut down their expenses as they have unavoidable fixed expenses by this action it will seem that they will cut $21000 rental expense only and how much revenue will they will actually loose? a lot.

The company can even adjust on the space they rent or move t a cheaper cost and also work on the expenses that are unavoidable to decrease them and maximize on getting more revenue.