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needanswersnowp needanswersnowp
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6 years ago
4) Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow:

   Total   Luxury   Sporty
Sales revenue   $530,000   $400,000   $130,000
Variable expenses   365,000   $245,000   120,000
Contribution margin   165,000   155,000   10,000
Fixed expenses   80,000   40,000   40,000
Operating income (loss)   $85,000   $115,000   $(-30,000)

Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for $30,000 per year, how will operating income be affected?

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Valued Member
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6 years ago
Current operating income =$85,000

Now if Sporty Line is discontinued,fixed expenses of $40,000 will continue as a result of which operating loss of $40,000 will occur resulting in a net operating income of the company =(115,000-40,000)=$75000

hence the discontinue will result in a net loss of $10,000 because 85,000- $75000

Good luck with the rest
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