Question - The income statement for Bedtime Company is divided by its two product lines, blankets and pillows, as follows:
|
Blankets
|
Pillows
|
Total
|
Sales revenue
|
$640,000
|
$298,000
|
$938,000
|
Variable costs
|
(465,000)
|
(242,000)
|
(707,000)
|
Contribution margin
|
$175,000
|
$56,000
|
$231,000
|
Fixed costs
|
(74,000)
|
(74,000)
|
(148,000)
|
Operating income (loss)
|
$101,000
|
$(18,000)
|
$83,000
|
Bedtime is considering eliminating the pillows product line. If this line is eliminated, Bedtime will be able to eliminate $72,000 of total fixed costs. How would this business decision impact operating income?
(a) increase of $72,000 in operating income (b) decrease of $56,000 in operating income (c) increase of $130,000 in operating income (d) increase of $16,000 in operating income.