Our company manufactures and sells seven different products to different markets. Financial data for product x2 is as follows:

• revenue, $45,000;
• variable expenses, $35,000; and
• fixed expenses $15,000.

$12,000 of the fixed costs can be eliminated and there will be no adverse effect on sales of other products. What is the effect of dropping this product on the operating income of the company?

Operating income will increase by $2,000.

Operating income will decrease by $2,000.

Operating income will decrease by $7,000.

Operating income will increase by $7,000.