C | https//bbleamr Apps QUESTION 6 The product ine due to poor operating income

ID: 2595430 • Letter: C

Question

C | https//bbleamr Apps QUESTION 6 The product ine due to poor operating income performance Fixed expenses are allocated to each product ine based product line information is for the Swiss Watch Company The company is considering Watch Products Me Variable expenses Fised expenses Operating income n's Women's Children's $15,000 $25,000 $20,000 7,500 12,500 S00 12,500 10000 s 2,500 $ 5,000 S (2,500) 5,000 (a ) Calculate the efect on the Swiss Company's operating income if the Children's watch product line is discontinued b ) Assume the Swiss Company's discontinues its Children's product line Calculate the total operating income for the Swiss TTT Aral Click Save and Submit to save and submit.Click Save All Answers to save all ansvers Save All Answers Close Win

Explanation / Answer

If the company will discontinue its Children Watch line then there will still be fixed expense which will be allocated to remaining lines.

Loss in Operating income = Total sales – Variable cost

= 20,000 – 12,500

Loss in Operating income = $7,500

If we discontinue children line then the operating income of the firm will decrease by $7,500

In My Opinion Product line should not be discontinued as the operating income from Child line is $7,500 and it is sharing 10,000 fixed cost and now the loss from this unit is only $2,500 but if this line will be closed then the WHOLE fixed cost of $10,000 will be shared by other units which will lead to decrease in overall profit of the firm.

So it will not be a financially viable to close this line.

Men

Women

Sales

15,000

25,000

Variable Cost

5,000

7,500

Fixed Cost

11,250

18,750

Operating income

(1,250)

Total Loss = (2500)