Mackenzie Ltd. manufactures and sells two items, products A and B. The company is considering dropping product B. It is expected that sales of product A will increase by 30% as a result. If product B is dropped fixed costs of $2,000 will be avoided. An income statement with both products follows.

What impact will dropping Product B have on Mackenzies monthly operating income?

a.Increase by $800

b.Increase by $1,980

c.Decrease by $2,820

Decrease by $1,150

\begin{tabular}{|lr|r|r|} \hline & Product A & Product B & \multicolumn{1}{|c|}{ Total } \\ \hline Sales & $10,000 & $8,000 & $18,000 \\ \hline Direct materials & 2,500 & 2,000 & 4,500 \\ \hline Direct labour & 2,000 & 1,200 & 3,200 \\ \hline Contribution margin & $5,500 & 4,800 & 10,300 \\ \hline Fixed costs & 1,300 & 4,700 & 6,000 \\ \hline Operating income & $4,200 & $100 & $4,300 \\ \hline \hline \end{tabular}