Suppose Smiley $O$ is considering discontinuing its oatsie ohs product line. Assume that during the past year, the oatsie ohs' product line income statement showed the following:

$($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 Smiley O discontinue the oatsie ohs product line?

Begin by preparing a contribution margin income statement for the oatsie ohs' product line. $($Use a minus sign or parentheses to enter a loss.$)$

Sales revenue

Less:

Variable expenses

$.$

Contribution margin

Less:

Fixed expenses

Operating income $($loss$)$

Data table

Fixed manufacturing overhead costs account for $40\%$ of the cost of goods, while

only $30\%$ of the operating expenses are fixed. Since the oatsie ohs line is just one

of the company's cereal operations, only $$780,000$ 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.