Question

Seven Company produces a model fan, which currently has a net loss. Below are its sales and costs

Sales revenue	$101,740
Less: Variable costs	64,930
Contribution margin	$?
Less: Direct fixed costs	57,394
Segment margin	$?
Less: Common fixed costs	53,226
Net operating income (loss)	$?

Eliminating the model fan product line would eliminate all of direct fixed costs. All of the common fixed costs would be redistributed to Seven's remaining product lines.

By how much will Pope’s net operating income increase or decrease if the fan is eliminated? If net income decreases, indicate with a -. Example, if net income decreases $1,000. Indicate -1,000.

(please show steps on how to answer this question, and notes. Thats way I can answer similar problems) Please and thanks!

Answer 1

Particulars	Amount $
Sales revenue	$                  101,740.00
Less: Variable costs	$                     64,930.00
Contribution margin	$                     36,810.00
Less: Direct fixed costs	$                     57,394.00
Segment margin	$                   (20,584.00)
Less: Common fixed costs	$                     53,226.00
Net operating (loss)	$                   (73,810.00)

Pope’s net operating income decreases $73,810.00.