Your Retail Store's accountant prepared the following income statement for the ladies' accessories product line:

Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has to be created elsewhere for a long-term employee currently earning an annual salary of $91,500.

Required:

Calculate the increase or decrease in the operating income in both alternatives

Sales Less: Variable expenses Contribution margin Less: Fixed expenses: Wages Insurance on inventory Advertising Net operating income (loss) $1,098,000 61,000 671,000 $3,050,000 1,433,500 1,616,500 1,830,000 $ (213,500)