Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below:

WILLIAMS PRODUCTS INC.
Income StatementSchool Knapsacks
For the Quarter Ended June 30
Sales				$	225,000
Variable expenses:
Variable manufacturing expenses	$	65,000
Sales commissions		24,000
Shipping		6,000
Total variable expenses					95,000
Contribution margin					130,000
Fixed expenses:
Salary of product-line manager		10,500
General factory overhead		52,000	*
Depreciation of equipment (no resale value)		18,000
Advertisingtraceable		55,000
Insurance on inventories		4,500
Purchasing department		25,000
Total fixed expenses					165,000
Operating loss				$	(35,000	)

*Allocated on the basis of machine-hours. Allocated on the basis of sales dollars.

Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the companys total general factory overhead or total purchasing department expenses.

Required: a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.)

b. Would you recommend that the Williams Products Inc line be discontinued?

multiple choice

• Yes

• No