Question - Considering dropping a product line with the following data:
Sales: $100,000
Variable Costs: $80,000
Contribution Margin: $20,000
Fixed Costs: $25000
Operating Loss: $5000
If the product line is dropped, $4000 of the fixed costs will be avoided and the freed up capacity would generate $4000 in additional contribution margin.
What will the effect on the overall income be if the product line is dropped? Please show steps.