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Diamond Company has three product lines, A, B, and C. The following financial information is available: Item Product Line A Product Line B Product Line
Diamond Company has three product lines, A, B, and C. The following financial information is available:
Item | Product Line A | Product Line B | Product Line C |
Sales | $30,000 | $45,000 | $12,000 |
Variable costs | $18,000 | $24,000 | $7,500 |
Contribution margin | $12,000 | $21,000 | $4,500 |
Fixed costs: | |||
Avoidable | $4,500 | $9,000 | $3,000 |
Unavoidable | $3,000 | $4,500 | $2,000 |
Operating income | $4,500 | $7,500 | ($500) |
Assuming that Product Line C is discontinued and the manufacturing space formerly devoted to this line is rented for $6,000 per year, operating income for the company will likely:
Increase by $7,200.
Increase by $3,300.
Increase by some other amount.
Be unchangedthe two effects cancel each other out.
Increase by $4,500.
Can you show how you got the increases in bold above in excel?
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