age Company manufactures two products Model A and Model B that sell for $120 and $80, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 100,000 units of each product. Its unit costs for each product at this level of activity are given below:

Model A

Model B

Direct materials

30

12

Direct labor

20

15

Variable manufacturing overhead

7

5

Traceable fixed manufacturing overhead

16

18

Variable selling expenses

12

8

Common fixed expenses

15

10

Total cost per unit

100

68

The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are deemed unavoidable and have been allocated to products based on sales dollars.

Assume that Gage normally produces and sells 60,000 Model Bs and 80,000 Model As per year. If Gage discontinues the Model B product line, its sales representatives could increase sales of Model A by 15,000 units. If Gage discontinues the Model B product line, how much would profits increase or decrease?

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Net Income Increase/ (Decrease)