Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the sweet potato fries line is only one of Ortho's french fries, only $725,000 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 Ortho. If the company decides to drop the product line, what will happen to the company's operating income? Should Ortho drop the product line?

Prepare an incremental analysis to show how dropping the sweet potato fries product line will affect Ortho's operating income.

Suppose Ortho is considering dropping its sweet potato fries product line. Assume that during the past year, the sweet potato fries product line income statement showed the following: E: (Click the icon to view the income statement data.) Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the sweet potato fries line is only one of Ortho's french fries, only $725,000 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 Ortho. If the company decides to drop the product line, what will happen to the company's operating income? Should Ortho drop the product line? Prepare an incremental analysis to show how dropping the sweet potato fries product line will affect Ortho's operating income. (Use parentheses or a minus sign for a decrease in operating income.) Data Table Ortho Analysis of Dropping the Sweet Potato Fries Product Line Expected decrease in revenues Expected decrease in expenses: Sales $ 7,550,000 6,250,000 Variable expenses Cost of goods sold Gross profit Fixed expenses 1,300,000 1,500,000 Expected decrease in total expenses Operating expenses $ (200,000) Expected increase (decrease) in operating income Operating loss. If Ortho drops the sweet potato fries product line, it will $ of income. Therefore, Ortho's drop this product line. Print Done Enter any number in the edit fields and then continue to the next