Question
Durian manufactures two products: A and B. The results of operations for year 2020 follow. Product A Product B TOTAL Units 10,000 5,000 15,000 Sales
Durian manufactures two products: A and B. The results of operations for year 2020 follow.
| Product A | Product B | TOTAL | |
Units | 10,000 | 5,000 | 15,000 | |
Sales | $300,000 | $900,000 | $1,200,000 | |
Less: Cost of goods sold | 200,000 | 600,000 | 800,000 | |
Gross margin | 100,000 | 300,000 | 400,000 | |
Less: Selling expenses | 100,000 | 160,000 | 260,000 | |
Operating income | $ 0 | $140,000 | $140,000 | |
Variable manufacturing costs included in cost of goods sold amount to $11per unit for Product A and $20 per unit for Product B.
Variable selling expenses are $9 per unit for Product A and $20 per unit for Product B; remaining selling amounts are fixed.
Durian wants to drop the Product A line. If the line is dropped, company-wide fixed manufacturing costs and fixed selling costs will not change, and will all be allocated to Product B. What would be the amount of decrease on operating income if Product A is discontinued?
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