3) Benjamin Sports Inc. has two product lines—softball helmets and football helm
ID: 2415329 • Letter: 3
Question
3) Benjamin Sports Inc. has two product lines—softball helmets and football helmets. Income statement data for the most recent year follow:
Total
Softball Helmets
Football Helmets
Sales revenue
$850,000
$500,000
$350,000
Variable expenses
(530,000)
(250,000)
(280,000)
Contribution margin
$320,000
$250,000
$70,000
Fixed expenses
(180,000)
(90,000)
(90,000)
Operating income (loss)
$140,000
$160,000
$(20,000)
Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales. What will be the effect of dropping Football Helmets line on the operating income of the company?
A) Operating income will increase by $20,000.
B) Operating income will increase by $90,000.
C) Operating income will decrease by $70,000.
D) Operating income will decrease by $350,000.
Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.
Total
Softball Helmets
Football Helmets
Sales revenue
$850,000
$500,000
$350,000
Variable expenses
(530,000)
(250,000)
(280,000)
Contribution margin
$320,000
$250,000
$70,000
Fixed expenses
(180,000)
(90,000)
(90,000)
Operating income (loss)
$140,000
$160,000
$(20,000)
Explanation / Answer
Total Softball Helmets Sales revenue $500,000 $500,000 Variable expenses -250,000 -250,000 Contribution margin $250,000 $250,000 Fixed expenses -180,000 -180,000 Operating income (loss) $70,000 $70,000 As the operating Income will decreased by $70000 Answer is option C
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