Question

Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected

Answer 1

Answer:

c. Increase of $192,500

Explanation:

Note: The full question is attached

Particulars                 Luxury Amount$

Sales                                $950,000

(380000*250/100)

Less: Variable cost          $612,500

(245000*250/100 )                            

Total contribution            $337,500

Less: Fixed expenses      $80,000  

Net Operating Income    $257,500

Change in Operating Income = New Profit - Existing profit = $257,500 - $65,000   = $192,500

Hence, there is an increase of $192,500