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Bill's Roofing is trying to decide whether to keep or drop its Wood shingles product line. Monthly sales and cost information are below: Product Line

Bill's Roofing is trying to decide whether to keep or drop its Wood shingles product line. Monthly sales and cost information are below:

Product Line
Total Metal Wood
Sales $ 140,000 $ 80,000 $ 60,000
Variable expenses 80,000 45,000 35,000
Contribution margin 60,000 35,000 25,000
Fixed expenses:
Salaries 14,000 8,000 6,000
Advertising 9,000 4,500 4,500
Utilities 2,500 1,000 1,500
Depreciation 4,000 2,500 1,500
Rent 27,000 15,000 12,000
Total Fixed Expenses 56,500 31,000 25,500
Net operating income (loss) $ 3,500 $ 4,000 $ (500)

Additional Information:

  1. Salaries are paid to employees working directly on the specific product.
  2. Advertising costs are specific to each product and are avoidable if the line is dropped.
  3. Utilities are for the entire company and are allocated to products based on the space occupied in the factory.
  4. Depreciation is for previously purchased equipment and is specific to each product line. The equipment cannot be resold.
  5. Rent is for the entire building and is allocated to product lines based on sales dollars.

How will Bill's net operating income change if the Wood shingles product line is dropped?

Decrease by $25,000

Increase by $500

Increase by $13,000

Decrease by $14,500

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