Assume Kroger’s grocery store is deciding whether to eliminate the salad bar section of its stores. The product line income statement shows the following quarterly data for the salad bar operations:

1. Only \($20,000\) of fixed costs can be eliminated if the salad bar is eliminated. The remaining \($80,000\) of fixed costs are unavoidable. What will happen to Kroger’s operating income if it discontinues the salad bars and does nothing with the freed capacity?
2. Management is thinking about replacing the salad bar section of the stores with a specialty olive bar, which is projected to bring in \($200,000\) of contribution margin each quarter while incurring no additional fixed costs. What will happen to Kroger’s operating income if it replaces the salad bars with olive bars?

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Sales revenue = $750,000 Fixed costs $100,000 Variable costs = $600,000