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DM Corporation has provided you with the following budgeted income statement for one of its products:

Sales revenue   $700,000
Variable costs   (430,000)
Contribution margin   $270,000
Fixed costs   (320,000)
Operating loss   $(50,000)

DM has just encountered environmental problems with the product and will be forced to drop the product line altogether. DM will be able to eliminate 70% of the fixed costs. What will be the impact on operating income of the company?
A) Operating income will decrease by $224,000.
B) Operating income will increase by $46,000.
C) Operating income will decrease by $46,000.
D) Operating income will increase by $224,000.
Textbook 
Horngren's Financial & Managerial Accounting, The Financial Chapters

Horngren's Financial & Managerial Accounting, The Financial Chapters


Edition: 5th
Authors:
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7 years ago
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