Question
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 | $ | 40,000 | $ | 70,000 | $ | 17,000 | ||||||||||||||||
| Variable costs | $ | 24,000 | $ | 37,000 | $ | 10,625 | ||||||||||||||||
| Contribution margin | $ | 16,000 | $ | 33,000 | $ | 6,375 | ||||||||||||||||
| Fixed costs: | ||||||||||||||||||||||
| Avoidable | $ | 4,800 | $ | 11,500 | $ | 4,500 | ||||||||||||||||
| Unavoidable | $ | 3,500 | $ | 7,000 | $ | 2,500 | ||||||||||||||||
| Pre-tax operating income | $ | 7,700 | $ | 14,500 | $ | (-625 | ) | |||||||||||||||
Diamond is thinking of dropping Product Line C because it is reporting an operating loss. Assuming the company drops Product Line C and does not replace it, pre-tax operating income for the firm will likely:
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Fundamental Financial Accounting Concepts
Authors: Thomas P. Edmonds
11th Edition
1260786587, 9781260786583
