Question
Oko Thia Inc packages and sells Vietnamese coffee. One of its coffee product lines, Robusta Red, is showing a loss and the company's cost accountant
Oko Thia Inc packages and sells Vietnamese coffee. One of its coffee product lines, Robusta Red, is showing a loss and the company's cost accountant is determining whether the product line should be discontinued. The latest annual contribution margin income statement shows the following:
Sales of Robusta Red $625,000
Less: variable costs 250,000
Contribution margin $375,000
Fixed costs 395,000
Operating loss $ (20,000)
20% of the fixed costs include a portion allocated from the corporate-wide fixed costs. These costs consist of CEO salaries and corporate headquarter administrative costs. Of the remaining fixed costs, $90,000 is for roasting and packaging equipment that is shared with Tran's other product lines. The remaining fixed costs can be eliminated if the product line is discontinued.
What is the net effect on Tran's overall income if the product line were discontinued?
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