Question
Tech manufactures two products: Regular and Super. The results of operations for 2013 follow. Regular Super Total Units 10,000 3,700 13,700 Sales P240,000 P740,00 0
Tech manufactures two products: Regular and Super. The results of operations for 2013 follow. Regular Super Total
Units 10,000 3,700 13,700
Sales P240,000 P740,00 0
P980,000
Less: Cost of goods sold 180,000 481,000 661,000
Gross margin P 60,000 P259,00 0
P319,000
Less: Selling expenses 60,000 134,000 194,000
Operating income P 0 P125,00 0
P125,000
Fixed manufacturing costs included in cost of goods sold amount to P3 per unit for Regular and P20 per unit for Super. Variable selling expenses are P4 per unit for Regular and P20 per unit for Super; remaining selling amounts are fixed.
1.. Tech 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?
A. P0.
B. P10,400 increase.
C. P20,000 increase.
D. P39,600 decrease.
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