Question
Gum Gum Corporation has three product lines, Spearmint, Peppermint, and Cinnamon. The following information is available: Spearmint $120,000 98,000 22,000 Peppermint $70,000 49,000 21,000
Gum Gum Corporation has three product lines, Spearmint, Peppermint, and Cinnamon. The following information is available: Spearmint $120,000 98,000 22,000 Peppermint $70,000 49,000 21,000 Cinnamon $77,000 68.000 9,000 Sales Variable costs Contribution margin Fixed costs: Avoidable Unavoidable Operating income 9,000 5,000 $8.000 11,000 4,000 $6.000 6,000 7,000 $(4,000) Assuming the Cinnamon product line is discontinued, and the space formerly used to produce the Cinnamon product line is rented for $11,000 per year, will the operating income increase or decrease and by how much? Show your calculations.
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