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Your Retail Stores accountant prepared the following income statement for the ladies accessories product line: Sales $ 3,100,000 Less: Variable expenses 1,457,000 Contribution margin 1,643,000
Your Retail Stores accountant prepared the following income statement for the ladies accessories product line: |
Sales | $ | 3,100,000 | ||||
Less: Variable expenses | 1,457,000 | |||||
Contribution margin | 1,643,000 | |||||
Less: Fixed expenses: | ||||||
Wages | $ | 1,116,000 | ||||
Insurance on inventory | 62,000 | |||||
Advertising | 682,000 | 1,860,000 | ||||
Net operating income (loss) | $ | (217,000 | ) | |||
Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has to be created elsewhere for a long-term employee currently earning an annual salary of $93,000. |
Required: |
Calculate the increase or decrease in the operating income in both alternatives. |
Should the ladies accessories product line be dropped? |
Yes | |
No |
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