Question

Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow:

	Total	Hiking	Fashion
Sales Revenue	$480,000	$340,000	$140,000
Variable expenses	$366,000	$235,000	$131,000
Contribution margin	$114,000	$105,000	$9,000
Fixed expenses	$76,000	$38,000	$38,000
Operating income(loss)	$38,000	$67,000	$(29,000)

Assuming fixed costs remain unchanged, how would discontinuing the Fashion line affect operating income?

A.

Increase in total operating income of $29,000

B.

Increase in total operating income of $114,000

C.

Decrease in total operating income of $9,000

D.

Decrease in total operating income of $140,000

Answer 1

Answer:

Boots Plus Income Statement
	Before discontinuing Fashion Line	After discontinuing Fashion Line	Effect
Sales Revenue	$          480,000	$        340,000
Less: Variable expenses	$          366,000	$        235,000
Contribution margin	$          114,000	$        105,000
Less: Fixed expenses	$            76,000	$          76,000
Operation Income	$            38,000	$          29,000	$ (9,000)

Option C is the correct answer.

Total operating profit is decreased by $9,000.