Blowing Sand Company produces the Drafty model fan, which currently has a net loss of...
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Accounting
Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $39,000 as follows:
| Drafty Model | ||||
| Sales revenue | $ | 160,000 | ||
| Less: Variable costs | 112,000 | |||
| Contribution margin | $ | 48,000 | ||
| Less: Direct fixed costs | 41,000 | |||
| Segment margin | $ | 7,000 | ||
| Less: Common fixed costs | 46,000 | |||
| Net operating income (loss) | $ | (39,000) | ||
Eliminating the Drafty product line would eliminate $41,000 of direct fixed costs. The $46,000 of common fixed costs would be redistributed to Blowing Sands remaining product lines. Will Blowing Sands net operating income increase or decrease if the Drafty model is eliminated? By how much?
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