Challenge Let's Review 12 Mackenzie Ltd. manufactures and sells two items, products A and B. The company is considering dropping product B. It is expected that sales of product A will increase by 30% as a result. If product B is dropped fixed costs of $2,000 will be avoided. An income statement with both products follows. Product A Product B Total Sales $10,000 $8,000 $18,000 Direct materials 2,500 2,000 4,500 Direct labour 2,000 1,200 3,200 Contribution margin $5,500 4,800 10,300 Fixed costs 1,300 4,700 6,000 Operating income $ 4,200 $ 100 $ 4,300 What impact will dropping Product B have on Mackenzie's monthly operating income? a. Increase by $800 b. Increase by $1,980 C. Decrease by $2,820 d. Decrease by $820