Question
Oneco Industries manufactures two products: Works and Best. The results of operations for 20x1 follow. Works Best Total Units 13,000 3,900 16,900 Sales revenue $
Oneco Industries manufactures two products: Works and Best. The results of operations for 20x1 follow.
Works | Best | Total | |||||||||
Units | 13,000 | 3,900 | 16,900 | ||||||||
Sales revenue | $ | 338,000 | $ | 819,000 | $ | 1,157,000 | |||||
Less: Cost of goods sold | 260,000 | 468,000 | 728,000 | ||||||||
Gross Margin | $ | 78,000 | $ | 351,000 | $ | 429,000 | |||||
Less: Selling expenses | 78,000 | 280,000 | 358,000 | ||||||||
Operating income (loss) | $ | 0 | $ | 71,000 | $ | 71,000 | |||||
Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Works and $30 per unit for Best. Variable selling expenses are $4 per unit for Works and $30 per unit for Best; remaining selling amounts are fixed.
Oneco Industries wants to drop the Works product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Works is discontinued?
Multiple Choice
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None of the answers is correct.
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$26,000 increase.
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$0.
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$15,600 increase.
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$49,400 decrease.
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