USE THE FOLLOWING INFORMATION FOR THE NEXT 4 QUESTIONS: Sports Hats, Etc, has tw
ID: 2567058 • Letter: U
Question
USE THE FOLLOWING INFORMATION FOR THE NEXT 4 QUESTIONS: Sports Hats, Etc, has two product lines: baseball helmets and foothall helmets. Income statement data for the most recent year follow Total Baseball Helmets Foothaill Helmets Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss) 75,000 26. Assuming fixed costs remain unchanged, how would dropping the Football Helmets line affect operating income? A. Increase in total opcrating income of $8,000 B. Increase in total operating income of $38,000 C. Decrease in total operating income of $30,000 D. Decrease in total operating income of $150,000 27. Ir $20,000 of fixed costs will be eliminated by dropping the Foohall Helmets linc, how will opcrating income be affected? A. Increase $12,000 B. Increase $20,000 C. Decrease $10,000 D. Decrease $14,000 28. Assuming the Foothall Helmets line is dropped, total fixed costs remain unchanged and the space formerly used to produce the line is rented for S45,000 per year, how will operating income be affected? A. Increase $15,000 B. Increase $37,000 C Decrease $7,000 D. Decrease $37,000 8Explanation / Answer
26)correct option is "C"
Dropping of football helmet will result in no contribution but fixed cost continue to b be incurred resulting in loss of -38000
overall income after drop = 37000 baseball income -38000 loss from football
= -1000 loss
Overall decrease in income =Income after drop - Income before
= -1000-29000
= -30000
27)
Dropping of football helmet will result in no contribution but fixed cost continue to be incurred resulting in loss of 18000 [38000-20000eliminate]
overall income after drop = 37000 baseball income -18000 loss from football
=19000
Overall decrease in income =Income after drop - Income before
= 19000-29000
= --10000decrease
correct option is "c"
28)Income/loss from dropping = -1000 +45000 = 44000
Overall affect = 44000-29000 = 15000
correct option is "a"
29)contribution margin ratioof baseball = 75000/310000=24.19%
Increase sales =310000(1+.7)= 527000
Increase in contribution =527000*.2419 = 127481.3
Net income of baseball = 127481.3-38000fixed cost =89481.3
Loss from football division = -38000 fixed cost
overall income = 89481.3-38000= 51481.3
Increase/(decrease)= 51481.3-29000 = 22481.3 [approx 22500]
correct option is "b"
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