Suppose Grain Day Cereals is considering discontinuing its maple cereal product line. Assume that during the past year, the maple cereal product line income statement showed the following:

Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the maple cereal line is just one of Grain Day Cereals' breakfast cereals, only $ 740,000 of direct fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by Grain Day Cereals. If the company decides to discontinue the product line, what will happen to the company's operating income? Should Grain Day Cereals discontinue the maple cereal productline?

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1 Sales revenue 2 Less Cost of goods sold 3 Gross profit 7450,000 900,000 1,600,000 5 Less: Operating expenses Operating income (loss) $ (700,000)