Ask Question
9 March, 05:40

Beautiful Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: ... Total ... Luxury ... Sporty Sales revenue ... $490,000 ... $360,000 ... $130,000 Variable expenses ... 359,000 ... 235,000 ... 124,000 Contribution margin ... 131,000 ... 125,000 ... 6000 Fixed expenses ... 76,000 ... 38,000 ... 38,000 Operating income (loss) ... $55,000 ... $87,000 ... - $32,000 Assuming fixed costs remain unchanged, how would discontinuing the Sporty line affect operating income?

A) Decrease in total operating income of $6000

B) Decrease in total operating income of $131,000

C) Increase in total operating income of $49,000

D) Increase in total operating income of $130,000

+5
Answers (1)
  1. 9 March, 05:57
    0
    Option (A) is the correct answer to this question.

    Explanation:

    The cessation of the Sporty line would forfeit the profits produced by the Sporty line business, but the business (Beautiful Watches) will have to bear the $38,000 fixed expenses involved by Spotify Watches.

    However, if production continued, the Sporty watches would have suffered a loss of $32,000. The company will bear fixed costs regardless of whether the company continues or discontinues the Sporty line market.

    Accordingly, the gross operating profits should have been

    = Total operating expenses - ($ 38000 - $ 32000)

    = $ 55000 - ($ 38000 - $ 32000)

    = $ 55000 - $ 6000

    = $ 49000

    There is also a fall of $6000 ($55000-$49000) in operating profits.

    Other options are incorrect because they are not related to the given scenario.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Beautiful Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: ... ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers