Luther Company, located in Largeville, Kansas (USA), is a retailer of durable, light-weight luggage products known for their high-quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, Kryptonite and Meteorite. Sales for Meteorite are decreasing, while purchase costs increasing. The firm is considering dropping the Meteorite product and only selling Kryptonite. Luther Company allocates fixed costs (both corporate and selling/administrative) to products based on sales revenue. When the president of the company saw the product-line income statements (presented below), he agreed that the Meteorite product should be dropped. If this is done, sales of Kryptonite are expected to increase by 15% next year; the firm's cost structure will remain the same. Sales Cost of goods sold (all variable) Gross margin Operating Expenses: Fixed corporate costs Variable selling and administrative expenses Fixed selling and administrative expenses Total Operating Expenses Operating income (loss) Required: Kryptonite Meteorite $ 200,000 90,000 $ 320,000 160,000 110,000 160,000 60,000 90,000 22,000 59,000 12,000 18,000 94,000 167,000 $ 16,000 $ (7,000) 1. Find the expected change in annual operating income by dropping the Meteorite product and selling only the Kryptonite product. 2. What strategic factors should be considered?