Question

g The company is deciding whether to drop product line Apple because it has an operating loss. Assuming fixed costs are unavoidable, if Berry Pie Inc. drops product line Apple and rents the space formerly used to produce product Apple for $20,000 per year, total operating income will be ________.

Answer 1

Fruit Pie Inc. has three product lines—Strawberry, Cherry, and Apple. The following information is available:

                                         Strawberry     Cherry       Apple

Sales revenue                   $70,000​    $60,000​    $31,000​

Variable costs                    (20,000)     (15,000)     (11,000)

Contribution margin         $50,000​   $45,000​   $20,000

Fixed costs                        (20,000)       (5000)   (25,000)

Operating income (loss)  $30,000​  $40,000​      $(5000)

The company is deciding whether to drop product line Apple because it has an operating loss. Assuming fixed costs are unavoidable, if Berry Pie Inc. drops product line Apple and rents the space formerly used to produce product Apple for $20,000 per year, total operating income will be ________.

Group of answer choices

$25,000

$65,000

$11,000

$20,000

Answer:

Fruit Pie Inc.

Assuming fixed costs are unavoidable, if Berry Pie Inc. drops product line Apple and rents the space formerly used to produce product Apple for $20,000 per year, total operating income will be ________.

= $65,000.

Explanation:

a) Data and Calculations:

                                        Strawberry     Cherry       Apple

Sales revenue                   $70,000​    $60,000​    $31,000​

Variable costs                    (20,000)     (15,000)     (11,000)

Contribution margin         $50,000​   $45,000​   $20,000

Fixed costs                        (20,000)       (5000)   (25,000)

Operating income (loss)  $30,000​  $40,000​      $(5000)

Income Statement after the Elimination of Apple:

                                        Strawberry     Cherry    Total

Sales revenue                   $70,000​    $60,000​  $130,000

Variable costs                    (20,000)     (15,000)    (35,000)

Contribution margin         $50,000​   $45,000​    $95,000

Fixed costs                        (20,000)       (5000)    (25,000)

Fixed costs (Apple's)                                             (25,000)

Rent income                                                           20,000

Operating income (loss)  $30,000​   $40,000​)  $65,000