Crash Sports, Inc. has two product lineslong dash-batting helmets and football helmets. The income statement data for the most recent year is as follows:

- Total Batting Helmets Football Helmets

Sales revenue $1,050,000 $700,000 $350,000

Variable costs (430,000) (150,000) ( 280,000)

Contribution margin $620,000 $550,000 $70,000

Fixed costs (180,000) (90,000) (90,000)

Operating income (loss) $440,000 $460,000 ($20,000)

If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

Question

Business

Hannah Simpson

23 January, 05:30

Crash Sports, Inc. has two product lineslong dash-batting helmets and football helmets. The income statement data for the most recent year is as follows:

- Total Batting Helmets Football Helmets

Sales revenue $1,050,000 $700,000 $350,000

Variable costs (430,000) (150,000) ( 280,000)

Contribution margin $620,000 $550,000 $70,000

Fixed costs (180,000) (90,000) (90,000)

Operating income (loss) $440,000 $460,000 ($20,000)

If $50,000 of fixed costs will be eliminated by dropping the football helmets line, how will dropping football helmets affect operating income of the company?

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Answers (1)

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Carsen Herrera · Answer 1

It will cause an increase in loss by $10,000

Explanation:

Giving the following information:

Total Batting Helmets Football Helmets

Sales revenue $350,000

Variable costs ( 280,000)

Contribution margin 70,000

Fixed costs (90,000)

Operating income (loss) ($20,000)

$50,000 of fixed costs will be eliminated by dropping the football helmets line

Effect on income = fixed costs savings - operating loss - fixed costs

Effect on income = 50,000 - 20,000 - 40,000 = - 10,000