Assume Kale'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: Sales revenue = $770,000 Fixed costs = $115,000 Variable costs = $545,000 1. 2. Only $35,000 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 Kale's operating income if it discontinues the salad bars and does nothing with the freed capacity? Management is thinking about replacing the salad bar section of the stores with a specialty olive bar, which is projected to bring in $240,000 of contribution margin each quarter while incurring no additional fixed costs. What will happen to Kale's operating income if it replaces the salad bars with olive bars? 1. Only $35,000 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 Kale's operating income if it discontinues the salad bars and does nothing with the freed capacity? Incremental Analysis for Discontinuation Decision Total Sales revenue from salad bars Contribution margin lost if salad bars are discontinued Operating income lost if salad bars are discontinued 2. Management is thinking about replacing the salad bar section of the stores with a specialty olive bar, which is projected to bring in $240,000 of contribution margin each quarter while incurring no additional fixed costs. What will happen to Kale's operating income if it replaces the salad bars with olive bars? (Use a minus sign or parentheses for a decrease in operating income.) Total If Salad Bars are Replaced with Olive Bars Contribution margin provided by olive bar Increase/(Decrease) in operating income from replacing salad bars with olive bars