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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

  • None of the answers is correct.

  • $26,000 increase.

  • $0.

  • $15,600 increase.

  • $49,400 decrease.

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