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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.

  1. What will total operating income be if Leonora drops the retail line?
  2. Should Mr. Burns keep or eliminate the retail line? Why?

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