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 Statement$$School Knapsacks

For the Quarter Ended June $30$

Sales $ $210,000$

Variable expenses:

Variable manufacturing expenses $ $58,800$

Sales commissions $23,100$

Shipping $6,300$

Total variable expenses $88,200$

Contribution margin $121,800$

Fixed expenses:

Salary of product$-$line manager $7,500$

General factory overhead $42,100*$

Depreciation of equipment $($no resale value$)14,000$

Advertising$$traceable $48,700$

Insurance on inventories $3,300$

Purchasing department $26,440$

Total fixed expenses $142,040$

Operating loss $ $(20,240)$

$*$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 company$$s 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