Question
Mr. Burns Industries manufactures light fixtures for home, retail, and industrial customers. The retail line has been showing losses for several years, and management is
Mr. Burns Industries manufactures light fixtures for home, retail, and industrial customers. The retail line has been showing losses for several years, and management is considering dropping the line. Recent income statements have been very similar to the following information which was prepared for the most recent year:
| Home | Retail | Industrial | Total |
Sales | $550,000 | $320,000 | $830,000 | $1,700,000 |
Variable costs | 357,500 | 217,600 | 680,600 | 1,255,700 |
Contribution margin | 192,500 | 102,400 | 149,400 | 444,300 |
Fixed costs | 125,000 | 130,000 | 115,000 | 370,000 |
Operating income | $67,500 | $(27,600) | $34,400 | $74,300 |
Of the fixed costs, $315,000 are common costs that have been allocated equally to each product line.
- What will total operating income be if Leonora drops the retail line?
- Should Mr. Burns keep or eliminate the retail line? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started