Brewer Corp. is considering dropping its talking dog product line due to continuing losses. Revenue and cost data for the talking dog line for the past year is:
If the talking dog is discontinued, then Brewer could avoid $110,000 per year in fixed costs.
Required:
1) What is the change in annual operating income from discontinuing the talking dog product line?
2) Assuming all other conditions stay the same, at what level of annual sales of the talking dog (in units) should Brewer be indifferent to discontinuing or continuing the product line?
3) Suppose that if the talking dog is dropped, the production and sale of other products would increase so as to generate a $15,000 increase in the contribution margin received from the other products. If all other conditions are the same, what is the change in annual operating income from dropping the talking dog?