Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow....
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Accounting
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.
Regular
Super
Total
Units
12,000
4,300
16,300
Sales revenue
$
360,000
$
989,000
$
1,349,000
Less: Cost of goods sold
288,000
645,000
933,000
Gross Margin
$
72,000
$
344,000
$
416,000
Less: Selling expenses
72,000
203,000
275,000
Operating income (loss)
$
0
$
141,000
$
141,000
Fixed manufacturing costs included in cost of goods sold amount to $2 per unit for Regular and $30 per unit for Super. Variable selling expenses are $3 per unit for Regular and $30 per unit for Super; remaining selling amounts are fixed. Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 20% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
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