Respuesta :
Answer:
Net Operating Income rises by $10,000 when Fashion Boots is discontinued.
Explanation:
Current operating profit for Boots Plus = $45,000
that is $65,000 profit from Hiking and $20,000 losses from Fashion
In case if Fashion boots is discontinued, then fixed cost eliminated = $30,000
In that case Total fixed cost of fashion boots non eliminated = $40,000 - $30,000 = $10,000
Which will be loss from Fashion as no other operating activity will be there.
Net operating profit of the company will be
Profit from Hiking Boots = $65,000
Less: Loss from Fashion Sales = $10,000 (Fixed Cost not eliminated)
Net Operating profit = $65,000 - $10,000 = $55,000
Net Operating Income rises by $10,000 when Fashion Boots is discontinued.
Answer:
The operating income would be increased by $10,000.
Explanation:
Here we are being told that fashion line is being discounted to reduce the fixed cost , so here we can calculate what would net operating income would be when the hiking boots line is continuing and compare it with current operating income and see whether it has increased or decreased from discontinuing the fashion line.
SALES REVENUE HIKING = $360,000
(-) VARIABLE EXPENSES = $255,000
CONTRIBUTION MARGIN = $360,000 - $255,000
= $105,000
(-) FIXED COST = $80,000 - $30,000(FIXED COST ELIMINATED)
= $50,000
NET OPERATING INCOME = $105,000 - $50,000
= $ 55,000
So with continuing the business with only hiking line income is $55,000 and earlier with both products the income was $45,000, so therefore there would be an increase in operating income b $10,000.
