Problem: Magnolia Park Company has three products, Regular, Deluxe & Economy. The following information is available:
Regular Deluxe Economy
Sales $52,500 $76,500 $21,600
Variable costs 31,500 40,800 13,125
Contribution margin 21,000 35,700 8,475
Fixed costs:
Avoidable 8,100 15,300 5,700
Unavoidable 4,950 8,100 4,725
Operating income $7,950 $12,300 ($1,950)
A) The company is thinking of dropping the Economy model because it is reporting a loss. Assuming Magnolia Park drops this product and does not replace it, operating income will:
Increase by _____
Decrease by _____
B) Assuming the Economy product is discontinued and the space formerly used to produce the product is rented for $5,750 per year, operating income will:
Increase by _______
Decrease by _______