Using this data Suppose Jim is considering dropping its sweet potato fries product line. Assume that during the past year, the sweet potato fries product line income statement showed the following: Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$5,300,000 Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . .6,100,000 Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(800,000) Operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .1,650,000 Operating loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$(2,450,000)

Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the sweet potato fries line is only one of Jim's french fries, only $775,000 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 Jim . If the company decides to drop the product line, what will happen to the company's operating income? Should Jim drop the product line?

Complete this table Analysis of Dropping the Sweet Potato Fries Product Line Expected decrease in revenues $5,300,000 Variable expenses Fixed expenses Expected decrease in total expenses Expected increase (decrease) in operating income