Juno’s Creations sells needlework supplies, sewing patterns, and fabrics, and of
ID: 2563293 • Letter: J
Question
Juno’s Creations sells needlework supplies, sewing patterns, and fabrics, and offers classes in needlework and sewing. The sales of sewing patterns and fabrics havebeen steadily declining. The most recent annual segment margin income statement showed the following:
None of the fixed costs for sewing are direct, so these costs would not be eliminated if the line is dropped. What would the annual operating income of the company be if the sewing line is eliminated?
A : $10,000 B : $70,000 C : $55,000 D : $30,000
Explanation / Answer
Current annual operating income of the company is the sum of the segment incme of all the segments.
Current annual operating income = $25,000 + $30,000 - $15,000 = $40,000
On elimination of the sewing line, the fixed costs shall remain same. The change in the annual operating income of the company shall be the contribution margin lost of the sewing line.
Annual operating income after elimination of sewing line = Current annual operating income - Coontribution margin of sewing line
Annual operating income after elimination of sewing line = $40,000 - $30,000 = $10,000
Hence, correct answer is A.$10,000
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