Problem:
Require assistance in calculating operating income impacts.
The following product line information is for the Home Deal 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.
............................................Active Wear Clothing
.....................................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)
Required to do:
Q1. Calculate the effect on the Home Deal's operating income if the Children's active wear clothing line is discontinued. Comment on your analysis.
Q2. Assume Home Deal's discontinues its Children's active wear clothing line, calculate the total operating income.