Question - The following product line information is for the Swiss Watch Company. The company is considering dropping its Children's product line due to poor operating income performance. Fixed expenses are allocated to each product line based on sales revenue.
|
|
Watch products
|
|
|
Men's
|
Women's
|
Children's
|
|
Sales
|
$15,000
|
$25,000
|
$20,000
|
|
Variable expenses
|
5,000
|
7,500
|
12,500
|
|
Fixed expenses (50% of sales)
|
7,500
|
12,500
|
10,000
|
|
Operating income
|
$2,500
|
$5,000
|
$(2,500)
|
(a) Calculate the effect on the Swiss Company's operating income if the Children's watch product line is discontinued. Comment on your analysis.
(b) Assume the Swiss Company discontinues its Children's product line. Calculate the total operating income for the Swiss Company.