Momentum Rollerblades has three product lines: D, E, and F. The following information is available:
D E F
Sales revenue $90,000 $40,000 $30,000
Variable costs (40,000) (10,000) (10,000)
Contribution margin $50,000 $30,000 $20,000
Fixed costs (10,000) (5,000) (25,000)
Operating income (loss) $40,000 $25,000 ($5,000)
The company is deciding whether to drop product line F because it has an operating loss. Assume that $21,000 of total fixed costs could be eliminated by dropping F. What effect would this decision have on operating income?
A. Operating income will decrease by $2000.
B. Operating income will increase by $24,000.
C. Operating income will decrease by $24,000.
D. Operating income will increase by $2000.
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