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How do you solve this question from special decisions in accounting?

label Accounting
account_circle Unassigned
schedule 1 Day
account_balance_wallet $5

Pottery Unlimited has two product lines:  cups and pitchers.  Income statement data for the most recent year follow:

 

Total

Cups

Pitchers

Sales revenue

$460,000

$310,000

$150,000

Variable expenses

355,000

235,000

120,000

Contribution margin

105,000

75,000

30,000

Fixed expenses

76,000

38,000

38,000

Operating income (loss)

$29,000

$37,000

$(8,000)

 

If $24023 in fixed costs will be eliminated by dropping the CUP line, how will operating income be affected? If income drops, use a negative sign in front of the number.

Mar 21st, 2015

                                                            Pottery Unlimited

                                       Income statement(After Dropping cup line)

                                                                                                               Pitchers

               Sales revenue                                                                       $150,000

               Variable expenses                                                                  120,000

               Contribution margin                                                                $30,000

                Fixed expenses($76,000 - $24,023)                                       51,977

               Operating income (loss)                                                        $(21,977)

 Operating income will be decreased from $29,000 to operating loss $(21,977).

operating loss $(21,977) consists of 

    Difference of Fixed Expenses by dropping Cup line($38,000 - $24,023)     $(13,977)

    Operating loss from sale of Pitchers                                                                ( 8,000)

    Total operating loss by dropping Cup line                                                     $ (21,977)

Mar 21st, 2015

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