E$3$ Q$17$Operating income $($loss$)$

Suppose Better Harvest is considering discontinuing its fruity rings product line. Assume that during the past year, the fruity rings' product line income statement showed the following: View the income statement data. View the additional information. If the company decides to discontinue the product line, what will happen to the company's operating income? Should Better Harvest discontinue the fruity rings product line? Begin by preparing a contribution margin income statement for the fruity rings' product line. (Use a minus sign or parentheses to enter a loss.) Sales revenue Less: Contribution margin Less: Operating income (loss) Prepare an incremental analysis to show how the discontinued fruity rings product line will affect Better Harvest's operating income. (Enter a "O" in an input field if there is no expected change as a result of discontinuing fruity rings.) Incremental Analysis for Discontinuation Decision Contribution margin lost if fruity rings is discontinued Less: Fixed cost savings if fruity rings is discontinued Total income. Therefore, Better Harvest gain lose Income statement data Operating income v if fruity rings is discontinued If Better Harvest discontinued the fruity rings product line, it will Additional information V discontinue this product line. Sales revenue Less: Cost of goods sold Gross profit Less: Operating expenses Operating income (loss) Print (450,000) Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the fruity rings line is just one of the company's cereal operations, only $775,000 of direct fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by the company. Done