Question - HiTech manufactures two products fitness bands and heart rate monitors. The company has prepared the following income statement (using absorption costing) for 2015:
|
Fitness Bands
|
Heart Rate Monitors
|
Total
|
|
Sales
|
$240,000
|
$740,000
|
$980,000
|
|
Less COGS
|
$180,000
|
$481,000
|
$661,000
|
|
Gross Margin
|
$60,000
|
$259,000
|
$319,000
|
|
Less selling and Adm expenses
|
$60,000
|
$134,000
|
$194,000
|
|
Net operating income
|
-
|
$125,000
|
$125,000
|
|
Number of unit produced and sold
|
10,000
|
3,700
|
13,700
|
Fixed manufacturing costs included in cost of good sold amount to $3 per unit for the fitness bands and $20 per unit for the heart rate monitors. Variable selling expenses are $4 per unit for the fitness bands and $20 per unit for the heart rate monitors; remaining selling and administrative expenses are fixed.
HiTech wants to drop the line of fitness bands. If the line were to be dropped company-wide fixed manufacturing costs would fall by 10%. What would be the impact on net operating income if the fitness band line is discontinued? (Positive, Negative)?