All About Animals has two product lines: Cat food and Dog food. Contribution mar

Question

All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss) Total $435,000 $61,000 $374,000 $101.000 $273,000 Cat Food $350,000 $21,000 $329,000 $49,000 $280,000 Dog Food $85,000 $40,000 $45,000 $52,000 $(7,000) Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $26,000 per year, how will operating income be affected? 0 A. Increase $254,000 O B. Decrease $19,000 ° C. Increase $527,000 0 D. Increase $19,000

Explanation / Answer

Total operating income for Cat Food=$280,000

Less:Fixed costs for Dog Food=($52000)

Add:income through rent generated=$26000

New net operating income=$254000

Hence decrease in net operating income=(273000-254000)=$19000(B).

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