Question

All About Animals has two product​ lines: Cat food and Dog food. Contribution margin income statement data for the most recent year​ follow:
Total Cat Food Dog Food
Sales revenue $435,000 $350,000 $85,000
Variable expenses $61,000 $21,000 $40,000
Contribution margin $374,000 $329,000 $45,000
Fixed expenses $101.000 $49,000 $52,000
Operating income (loss) $273,000 $280,000 $(7,000)
Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $26,000 per year, how will operating income be affected?
A. Increase $254,000
B. Decrease $19,000
C. Increase $527,000
D. Increase $19,000

Answer 1

Answer:

B. Decrease $19,000

Explanation:

The computation of the amount affect the operating income is shown below

But before that first we need to find the new operating income

Total operating income for Cat Food  $280,000

Less: Fixed costs for Dog Food           ($52000)

Add: rented per year                             $26000

New net operating income                  $254000

Now decrease in net operating income is

= operating income - new operating income

= $273,000 - $254,000

= $19,000