Suppose Quacker is considering discontinuing its bran flakes product line. Assume that during the past year, the bran flakes' product line income statement showed the following: EE (Click the icon to view the income statement data.) (Click the icon for additional information.) If the company decides to discontinue the product line, what will happen to the company's operating income? Should Quacker discontinue the bran flakes product line? Begin by preparing a contribution margin income statement for the bran flakes' product line. (Use a minus sign or parentheses to enter a loss.) Sales revenue Less: Contribution margin Less: Operating income (loss) Prepare an incremental analysis to show how the discontinued bran flakes product line will affect Quacker's operating income. (Enter a "0" in an input field if there is no expected change as a result of discontinuing bran flakes.) Incremental Analysis for Discontinuation Decision Contribution margin lost if bran flakes is discontinued Less: Fixed cost savings if bran flakes is discontinued Operating income If Quacker discontinued the bran flakes product line, it will Total Data table if bran flakes is discontinued B income. Therefore, Quacker discontinue this product line. 1 Sales revenue $ 7,550,000 2 Less: Cost of goods sold 6,300,000 3 Gross profit 1,250,000 4 Less: Operating expenses 1,550,000 More info 5 Operating income (loss) $ (300,000) Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the bran flakes line is just one of the company's cereal operations, only $755,000 of direct fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by the company. Print Done Print Done