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The segmented income statement for XYZ Company for the year ended December 31, 2016, follows: XYZ COMPANY Segmented Income Statement For the Year Ended December

The segmented income statement for XYZ Company for the year ended December 31, 2016, follows:

XYZ COMPANY
Segmented Income Statement
For the Year Ended December 31, 2016
Total Company Product A Product B Product C
Sales $ 599,000 $ 294,000 $ 126,000 $ 179,000
Variable expenses 271,000 147,000 52,000 72,000
Contribution margin $ 328,000 $ 147,000 $ 74,000 $ 107,000
Fixed expenses 281,000 160,000 46,000 75,000
Operating income $ 47,000 $ (13,000 ) $ 28,000 $ 32,000

The company is concerned about the performance of product A, and you have been asked to analyze the situation and recommend to the president whether to continue or discontinue the product. During your investigation, you discover that certain fixed expenses are traceable directly to each product line as indicated here:

Total Company Product A Product B Product C
Direct fixed expenses $103,000 $75,000 $12,000 $16,000

The remaining fixed expenses are considered to be corporate-wide expenses that have been allocated to each product line based on sales revenue.

Required:

a. What will be the effect of the decision to discontinue product A on operating income?

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