Question

Sheridan Trivia Co. manufactures and sells two trivia products, the Square Trivia Game and the Round Trivia Game. Last quarter’s operating profits, by product, and for the company as a whole, were as follows:

Square Round Total

Sales revenue $15,500 $6,610 $22,110

Variable expenses 4,830 2,990 7,820

Contribution margin 10,670 3,620 14,290

Fixed expenses 2,930 4,200 7,130

Operating income $ 7,740 $(580 ) $ 7,160

Forty percent of the Round Game’s fixed costs could have been avoided if the game had not been produced or sold.

If the Round Game had been discontinued before the last quarter, what would operating income have been for the company as a whole?

Answer 1

Answer = $ 5,220

Note: 1. Calculation of Operating Income :

	Square	Round	Total
Sales Revenue	15,500	-	15,500
Less : Variable Expenses	4,830	-	4,830
Contribution Margin	10,670	-	10,670
Less: Fixed Expenses	2,930	2,520	5,450
Operating Income	7,740	-2,520	5,220

2. No Sales Revenue and Variable expense would incur if the Round Game had been discontinued.

3. Fixed Cost ignored = 40%

Hence, Fixed Cost Incurred = 60%

= $ 4200*60%

= $ 2520