Question
Carrie Corporation makes three products: a standard model, a deluxe model, and a luxury model. The financial statements of the products are as follows: Standard
Carrie Corporation makes three products: a standard model, a deluxe model, and a luxury model. The financial statements of the products are as follows:
| Standard Model | Deluxe Model |
| Luxury Model | Total | ||||||||
Sales revenue | $ | 90,000 |
| $ | 70,000 |
|
| $ | 50,000 |
| $ | 210,000 |
|
Variable costs |
| 30,000 |
|
| 35,000 |
|
|
| 25,000 |
|
| 90,000 |
|
Contribution margin |
| 60,000 |
|
| 35,000 |
|
|
| 25,000 |
|
| 120,000 |
|
Less fixed costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
| 12,000 |
|
| 20,000 |
|
|
| 4,000 |
|
| 36,000 |
|
Rent |
| 10,000 |
|
| 10,000 |
|
|
| 10,000 |
|
| 30,000 |
|
Administrative |
| 20,000 |
|
| 10,000 |
|
|
| 8,000 |
|
| 38,000 |
|
Operating profit (loss) | $ | 18,000 |
| $ | (5,000 | ) |
| $ | 3,000 |
| $ | 16,000 |
|
If the deluxe model product line was discontinued, all variable costs for that line could be avoided and $10,000 of the salaries associated with that model could be avoided. The other fixed costs are unavoidable. If the deluxe model product line is dropped, how will the company's operating profit be impacted?
Multiple Choice
A $10,000 increase
B $5,000 increase
C $25,000 decrease
D $15,000 decrease
E None of these.
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