Thank you! All About Animals has two product lines: Cat food and Dog food Contri

Question

Thank you!

All About Animals has two product lines: Cat food and Dog food Contribution margin income statement data for the most recent year follow Sales revenue Variable expenses Contribution margin Foed expenses Operating income (loss)$92,000 $100,000 S(8,000) Total Cat Food Dog Food 385,000 $300,000 $85,000 191,000 $150,000 $41,000 $194,000 $150,000 S44,000 $102,000 $50,000 $52,000 Assuming the Dog food line is discontinued, total foced costs remain unchanged, and the space formerty used to produce the Dog food line is used to double the production of Cat food, how will operating income be affected? O A. Increase $150,000 O B. Increase $106,000 O C. Increase $300,000 O D. Decrease $106,000

Explanation / Answer

Answer is Option B: Increase $106000

Particulars

Revised Amounts

Sales

300000*2

600000

Less: Variable cost

600000*50%

300000

Contribution

Sales – Variable cost

300000

Less: Fixed Cost

Fully

102000

Operating Income

Contribution – Fixed cost

198000

Change in Operating Income = Revised Operating Income – Old Operating income

Old Operating income = $92000

Change in Operating Income = =198000-92000

Change in Operating Income = $106000 (increase)

Particulars

Revised Amounts

Sales

300000*2

600000

Less: Variable cost

600000*50%

300000

Contribution

Sales – Variable cost

300000

Less: Fixed Cost

Fully

102000

Operating Income

Contribution – Fixed cost

198000

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