Meditate to Elevate is a wholesaler of gear to yoga studios. The company sells three product lines: Ujjayi, Drishti, and Tapas. A traditional departmental income statement for the year ended 12.31.20 is shown below:

	Ujjayi	Drishti	Tapas
Sales Revenue	$80,000	$30,000	$37,500
(Cost of Goods Sold)	(65,000)	(9,000)	(20,250)
Gross Profit	15,000	21,000	17,250
(Operating Expenses)	(20,000)	(15,000)	(7,375)
Operating Income	$(5,000)	$6,000	$9,875

40% of the cost of goods sold for each product line is variable. The remaining cost of goods sold for each product line consists of traceable fixed costs. The operating expenses for each product line include $6,000 of common fixed costs. The remaining operating expenses consist of traceable fixed costs.

Due to profitability concerns, management is considering dropping the Ujjayi product line. If Ujjayi is dropped, the freed up capacity would be used to expand Tapas's operations. As a result, Tapas's sales volume would increase by 10%, and its traceable fixed costs would increase by $2,000 due to the cost of expansion. The loss of Ujjayi and the expansion of Tapas would result in a 5% decrease in Drishti's sales volume. What would be the annual change in operating income if Ujjayi is dropped?

A.

decrease of $5,442.50

B.

increase of $3,987.50

C.

increase of $4,620.00

D.

decrease of $1,380.00

E.

increase of $15,987.50

READ EACH ANSWER CHOICE CAREFULLY