TB MC Qu. 14-59 Omar Industries manufactures two products...

Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

	Regular				Super				Total
Units		12,000				3,900				15,900
Sales revenue	$	312,000			$	819,000			$	1,131,000
Less: Cost of goods sold		240,000				468,000				708,000
Gross Margin	$	72,000			$	351,000			$	423,000
Less: Selling expenses		72,000				180,000				252,000
Operating income (loss)	$	0			$	171,000			$	171,000

Fixed manufacturing costs included in cost of goods sold amount to $4 per unit for Regular and $20 per unit for Super. Variable selling expenses are $5 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed. Omar Industries wants to drop the Regular 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 Regular is discontinued?

Multiple Choice

$0.

$12,600 increase.

$12,000 increase.

$47,400 decrease.

None of the answers is correct.