Question
Lakeside Inc. makes three different kayak styles: a white-water kayak, a sea kayak, and a fishing kayak. Lakeside, Inc. is considering dropping the fishing kayak
Lakeside Inc. makes three different kayak styles: a white-water kayak, a sea kayak, and a fishing kayak. Lakeside, Inc. is considering dropping the fishing kayak because of low sales. Below are the fishing kayak sales for the past year: Sales (1,000 fishing kayaks at $365 per unit) $365,000 Variable expenses $175,000 Fixed manufacturing expenses $117,000 Fixed selling and administrative expenses $80,050 Of the fixed manufacturing expenses, $10,000 is related to depreciation on a machine that is used for only the fishing kayak and this machine has no resale value. The rest of the manufacturing expenses are shared among all the products and would not change if the fishing kayak was dropped. Of the fixed selling and administrative expenses, $70,000 is avoidable if the fishing kayak is discontinued. Assume that discontinuing the fishing kayak has no impact on the other products. If Lakeside, Inc. discontinues the fishing kayak, what is the total increase (decrease) in operating income?
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