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Your Retail Store's accountant prepared the following income statement for the ladies' accessories product line: $2,875,000 Sales Less: Variable expenses 1,351,250 Contribution Less: Fixed Wages
Your Retail Store's accountant prepared the following income statement for the ladies' accessories product line: $2,875,000 Sales Less: Variable expenses 1,351,250 Contribution Less: Fixed Wages $1,035,000 1,523,750 margin expenses: Insurance57,500 Advertising 632,500 Net on inventory 1,725,000 $ (201,250) operating income (loss) 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 $86,250. Required: Calculate the increase or decrease in the operating income in both alternatives. Keep Product line Drop Product line sales Contribution margin Fixed expenses Net operating income(loss Should the ladies' accessories product line be dropped? Yes No
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