Question

Armor​ Sports, Inc. has two product lineslong dash—batting helmets and football helmets. The income statement data...

Armor​ Sports, Inc. has two product

lineslong dash—batting

helmets and football helmets. The income statement data for the most recent year is as​ follows:

Total

Batting Helmets

Football Helmets

Sales revenue

​$950,000

​$600,000

​$350,000

Variable costs

​(490,000)

​(200,000)

​(​290,000)

Contribution margin

​$460,000

​$400,000

​$60,000

Fixed costs

​(170,000)

​(70,000)

​(100,000)

Operating income​ (loss)

​$290,000

​$330,000

​($40,000)

What is the effect of dropping football helmets line on the operating income of the​ company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other​ sales.)

A.

Operating income will increase by​ $70,000.

B.

Operating income will increase by​ $40,000.

C.

Operating income will decrease by​ $60,000.

D.

Operating income will decrease by​ $350,000.

Business   Accounting   
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Homework Answers

Answer #1

Total Operating Income before dropping football helmets line = $290,000

Total operating income after dropping football helmets line = Contribution margin of Battling Helmets Line - Total Fixed Costs

= $400,000 - ($100,000 + 70,000)

= $400,000 - 170,000

= $230,000

Therefore, the effect of dropping football helmets line on the operating income of the company is the Operating Income will decrease by $60,000 ($290,000 - 230,000)

“Hence, The Answer is (c), The Operating Income will decrease by $60,000”

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