Faros Hats, Inc. has two product

lineslong dashbatting

helmets and football helmets. The income statement data for the most recent year is as follows:

	Total	Batting Helmets	Football Helmets
Sales revenue	$850,000	$500,000	$350,000
Variable costs	(440,000)	(150,000)	(290,000)
Contribution margin	$410,000	$350,000	$60,000
Fixed costs	(190,000)	(90,000)	(100,000)
Operating income (loss)	$220,000	$260,000	$(40,000)

What is the effect of dropping football helmets line on the operating income of the company? (Assume that fixed costs remain unchanged and that there would be no adverse effect on other sales.)

A.

Operating income will increase by $40,000.

B.

Operating income will increase by $90,000.

C.

Operating income will decrease by $60,000.

D.

Operating income will decrease by $350,000.

Ibis Paper Company prepared the following static budget for November:

Static Budget
Units/Volume		12,000
	Per Unit
Sales Revenue	$21.00	$252,000
Variable Costs	8.00	96,000
Contribution Margin		156,000
Fixed Costs		13,000
Operating Income/(Loss)		$143,000

If a flexible budget is prepared at a volume of 13,300 units, calculate the operating income at 13,300 units of production. The production level is within the relevant range.

A.

$143,000

B.

$156,000

C.

$172,900

D.

$159,900