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				$	250,000
Variable expenses:
Variable manufacturing expenses	$	70,000
Sales commissions		27,500
Shipping		7,500
Total variable expenses					105,000
Contribution margin					145,000
Fixed expenses:
Salary of product-line manager		9,250
General factory overhead		49,450	*
Depreciation of equipment (no resale value)		17,500
Advertisingtraceable		51,150
Insurance on inventories		4,000
Purchasing department		29,800
Total fixed expenses					161,150
Operating loss				$	(16,150	)

*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.)

	Keep School Knapsack	Drop School Knapsack	Difference: Operating Income Increase or (Decrease)
Sales
Variable expenses:
Variable manufacturing expenses
Sales commissions
Shipping
Total variable expenses
Contribution margin
Fixed expenses:
Salary of product-line manager
General factory overhead
Depreciation of equipment
Advertisingtraceable
Insurance on inventories
Purchasing department
Total fixed expenses
Operating loss

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

multiple choice

• Yes

• No