Business

Landin

27 February, 03:58

Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $38,000 as follows:

Drafty Model

Sales revenue $ 250,000

Less: Variable costs 175,000

Contribution margin $ 75,000

Less: Direct fixed costs 69,000

Segment margin $ 6,000

Less: Common fixed costs 44,000

Net operating income (loss) $ (38,000)

Eliminating the Drafty product line would eliminate $69,000 of direct fixed costs. The $44,000 of common fixed costs would be redistributed to Blowing Sand's remaining product lines.

Will Blowing Sand's net operating income increase or decrease if the Drafty model is eliminated? By how much?