Question - JF Cola is currently considering whether to discontinue production of its diet drink. The diet drink product had the following product loss last year:
|
Sales Revenue
|
$260,000
|
|
Cost of Goods Sold
|
(160,000)
|
|
Gross Profit
|
100,000
|
|
Operating Expenses
|
(120,000)
|
|
Operating Loss
|
$(20,000)
|
25% of the cost of goods sold represents fixed manufacturing overhead costs and 30% of the operating expenses are fixed. Only $60,000 of the fixed costs will be eliminated if the diet line is discontinued.
What will happen to the company's operating income if the diet line is discontinued?
A. The company's operating income will increase.
B. The company's operating income will decrease. By how much will the company's operating income change if the diet line is discontinued?