| 3? of 40 (40 complete) ? This Test: 40 pts possible Head Bucket, Inc. has two

ID: 2405953 • Letter: #

Question

| 3? of 40 (40 complete) ? This Test: 40 pts possible Head Bucket, Inc. has two product lines- batting helmets and football helmets. The income statement data for the most recent year is as follows Total $850,000 (450,000) $400,000 (182.000) Batting Helmets Football Helmets Sales revenue Variable costs Contribution margin Fxed costs Operating income (loss)$218,000$260,000 $(42000) Assuming the football helmet line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the football helmet line is used to double the production of batting helmets, operating income will be $500,000 (150,000) $350,000 (90,000) 350,000 (300,000) $50,000 (92,000) O A. $182,000 B. $350,000 O C. $260,000 O D. $518,000

Explanation / Answer

Correct answer (D) $518000.

Calculations and Explanation

Income Statement

Batting helmets Production Doubled

Sales Revenue

$ 1,000,000.00

Variable Cost

$ 300,000.00

Contribution Margin

$ 700,000.00

Fixed Cost

$ 182,000.00

Operating Income

$ 518,000.00

The sale has increased from 500000 to 1000000. Variable cost will increase at a constant rate and Total Fixed cost of 182000 will be applied to Batting Helmets. Total fixed cost is taken for batting helmet because fixed cost on Football helmet is unavoidable and freed up space will be utilized for batting helmets.