Bingo Company manufactures and sells a singing Bingo dog toy. Results for last y

Question

Bingo Company manufactures and sells a singing Bingo dog toy. Results for last year are as follows: Sales (10,000 units at S15 each) Less expenses $150,000 Variable production costs Variable selling costs Salary of foreman Traceable fixed costs Fixed manufacturing overhead $90,000 22,500 19,000 17,500 16,000 $165,000 $15,000 Total expenses Net operating loss Bingo is trying to decide whether to discontinue the dog toy. Dropping the product would have no effect on the fixed manufacturing overhead, but would increase the contribution margin of other product lines by $1,500. What will the change in operating income be if the company drops the Bingo dog toy? $500 increase $15,000 decrease $14,000 increase $15,000 increase

Explanation / Answer

Calculate effect on operating income :

Loss if product continue = (15000)

Loss if product discontinue = (16000-1500) = (14500)

So if product discontinue then operating income will increase by $500

so answer is a) $500 increase

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