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 vear follow Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss) Total Cat Food Dog Food $85,000 $40,000 $45,000 $52,000 $265,000$272,000S(7,000) $425.000 $340,000 $23,000 $362,000 $317,000 $45,000 $63,000 $97,000 Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $23,000 per year, how will operating income be affected? A. Increase $22,000 B. Increase $243,000 O C. Decrease $22,000 D. Increase $508,000

Explanation / Answer

Answer: [C] Decrease $ 22,000

Explanation:-

Income statement (Dog Food):-

Avoidance of loss due discontinuance of dog food

7,000

Rental Income

23,000

Less: Fixed Cost                                         

(52,000)

Net effect on income

(22,000)

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Avoidance of loss due discontinuance of dog food

7,000

Rental Income

23,000

Less: Fixed Cost                                         

(52,000)

Net effect on income

(22,000)

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