Justin Industries produces three versions of tires: Supreme, Advanced, and Basic

Question

Justin Industries produces three versions of tires: Supreme, Advanced, and Basic. A condensed segmented income statement for a recent period follows:
Supreme Advanced Basic Total
Sales $1,000,000 $400,000 $130,000 $1,530,000
Variable expenses 650,000 280,000 116,000 1,046,000
Contribution margin 350,000 120,000 14,000 484,000
Fixed expenses 150,000 70,000 44,000 264,000
Net income (loss) $200,000 $ 50,000 $(30,000) $220,000

Assume 34,000 of the fixed expenses for the Basic line are avaliable. What will be total net income if the line is dropped?

a) 250,000

b) 206,000

c)210,000

d) 240,000

how do you get the answer?

thanks

Explanation / Answer

b.$206,000 (the 14k CM will be lost, reducing net income by 14k; 220k-14k=206k)

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