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Boots Plus has two product​ lines: Hiking boots and Fashion boots. Income statement data for the...

Boots Plus has two product​ lines: Hiking boots and Fashion boots. Income statement data for the most recent year​ follow: Total, Hiking, Fashion Sales revenue $ 530 000 $ 390 000 ​$140,000

Variable expenses 405 000 285 000 ​120,000

Contribution margin 125 000 105 000 ​20,000

Fixed expenses 79 000 39 500 39 500

Operating income​ (loss) ​$46 000 $ 65 500 $( 19 500 )

If $ 27 comma 000 of fixed costs will be eliminated by discontinuing the Fashion​ line, how will operating income be​ affected? A. Decrease $ 48 comma 500 B. Increase $ 7 comma 000 C. Increase $ 101 comma 000 D. Increase $ 55 comma 000

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Answer #1
Correct Option B i.e. Increase $7000
If Fashion boots line is discontinued, following changes will occur
Loss of Contribution margin of Fashion Line         (20,000)
Add: Saving in Fixed cost due to dropping line           27,000
Net increase in Net Income              7,000
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