Shine Bright Company has three product lines: D, E & F. The following informatio

Question

Shine Bright Company has three product lines: D, E & F. The following information is available: D: Sales Revenue: $60,000, variable costs 36,000, contribution margin: 24,000, fixed expenses: 120,000, operating income: $12,000 E: Sales Revenue: $38,000, variable costs 18,000, contribution margin: 20,000, fixed expenses: 15,000, operating income: $5,000 F: Sales Revenue: $26,000, variable costs $12,000, contribution margin: 14,000, fixed expenses: 16,000, operating income (loss): $(2,000) Shine Bright Company is thinking of dropping product line F because it is reporting an operating loss. All fixed costs are unavoidable. Assume Shine Bright Company is able to increase the sale price of product F to $30,000 with no change in volume of units siold and no change in variable costs or fixed costs, what affect will this have on operating income? a) increase $2,000; b) increase $4,000; c) decrease $2,000; d) decrease $4,000

Explanation / Answer

Since sales of F is increased to 30000 from 16000 without changing fixed or variable expenses for product F so there will be some change in Operating income. This change in sales will not effect income of any of the other product. Operating income for product F now = 30000 - 12000 - 16000 = 2000 Change in OI = 2000 - (-2000) = 4000 (b) option is correct

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