Question

. Best Brands Inc. sells cat food and dog food. Here are data for the current year:

	Cat Food	Dog Food	Total
Sales revenue	$300,000	$85,000	$385,000
Variable costs	(160,000)	(48,000)	(208,000)
Contribution margin	$140,000	$37,000	$177,000
Traceable fixed costs	0	0	0
Common fixed costs	(50,000)	(52,000)	(102,000)
Operating income (loss)	$90,000	$(15,000)	$75,000

If Best Brands discontinues the dog food product line, the machine time formerly used to produce dog food can be used to double the production of cat food. How would this impact operating income?

Answer 1

If best brands discontinued the dog food product line the operating income of the company is as follows

Sales (300,000*2). $600,000

Variable cost (160,000*2) ($320,000)

Contribution margin. $280,000

Margin traceable fixed cost. 0

Common Fixed cost. ($102,000) I.e,.,(50,000+52,000)

Operating Income. $178,000

If the dog food product line is discontinued the operating income of the best brands will raise to $178,000. So that will be get to a net impact of $103,000(178,000-75,000)