Question

The income statement for Germain Appliances is divided by its two product​ lines, Toasters and​ Microwaves, as​ follows: Toaster Microwave Total Sales revenue $650,000 ​ $255,000 $905,000 Variable expenses $460,000 ​ $210,000 $670,000 Contribution margin $190,000 ​ $45,000 $235,000 Fixed expenses $90,000 $90, 000 $180,000 Operating income​ (loss) $100,000 $( 45,000 ) $55,000 If Germain Appliances can eliminate fixed costs of $ 36,000 by discontinuing the Microwave​ line, then discontinuing it should result in which of the​ following?A. Decrease in total operating income of $10,000 B. Increase in total operating income of $10,000 C. Decrease in total operating income of $(25,000) D. Increase in total operating income of $(25,000)

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Toaster Microwave Total

Sales revenue ​ $255,000

Variable expenses  $210,000

Contribution margin  $45,000

Fixed expenses $90,000

Operating income​ (loss) $( 45,000 )

Germain Appliances can eliminate fixed costs of $ 36,000 by discontinuing the Microwave​ line.

New income= 100,000 - 54,000= 46,000

Difference= 46,000 - 55,000= -9,000