Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter. The past three months of information for Model AE2 are summarized below: Sales (1,000 units) $300,000 Manufacturing costs: Direct materials 150,000 Direct labor ($15 per hour) 60,000 Overhead 100,000 Operating loss ($10,000) Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value. If Model AE2 is dropped from the product line, operating income will:

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Business

Abdullah Love

Today, 17:31

Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter. The past three months of information for Model AE2 are summarized below: Sales (1,000 units) $300,000 Manufacturing costs: Direct materials 150,000 Direct labor ($15 per hour) 60,000 Overhead 100,000 Operating loss ($10,000) Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value. If Model AE2 is dropped from the product line, operating income will:

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Answers (1)

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Gianni Mcintyre · Answer 1

It will decrease by $20,000.

Explanation:

In this exercise the resolution is:

$300,000 - $150,000 - $60,000 - $70,000 = $20,000

This product contributes $20,000 toward corporate profits, therefore, discontinuing this product will decrease operating income by $20,000.