Oneco Industries manufactures two products: Works and Best. Theresults of operations for 20x1 follow.Works...Oneco...

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Accounting

Oneco Industries manufactures two products: Works and Best. Theresults of operations for 20x1 follow.
Works Best Total
Units 15,000 4,000 19,000
Sales revenue $ 420,000 $ 760,000 $ 1,180,000
Less: Cost of goods sold 330,000 420,000 750,000
Gross Margin $ 90,000 $ 340,000 $ 430,000
Less: Selling expenses 90,000 210,000 300,000
Operating income (loss) $ 0 $ 130,000 $ 130,000

Fixed manufacturing costs included in cost of goods sold amount to$2 per unit for Works and $30 per unit for Best. Variable sellingexpenses are $3 per unit for Works and $30 per unit for Best;remaining selling amounts are fixed.

Oneco Industries wants to drop the Works product line. If the lineis dropped, company-wide fixed manufacturing costs would fall by20% because there is no alternative use of the facilities. Whatwould be the impact on operating income if Works isdiscontinued?
Multiple Choice
$45,000 increase.
$45,000 decrease.
$30,000 increase.
$0.
None of the answers is correct.

Answer & Explanation Solved by verified expert

4.1 Ratings (840 Votes)

Correct answer---------$45,000 decrease.

Working

	Works	Best	Total
Units		4000	4000
Sales revenue		$ 760,000.00	$ 760,000.00
Less: Cost of goods sold-Variable		$ 300,000.00	$ 300,000.00
Less: Selling expenses-Variable		$ 120,000.00	$ 120,000.00
Contribution margin	$ -	$ 340,000.00	$ 340,000.00
Less: Selling expenses-Fixed	$ 45,000.00	$ 90,000.00	$ 135,000.00
Less: Cost of goods sold-Fixed	$ 24,000.00	$ 96,000.00	$ 120,000.00
Net Operating income	$ (69,000.00)	$ 154,000.00	$ 85,000.00

Income before discontinuing Work	$ 130,000.00
Income after discontinuing Work	$ 85,000.00
Net decrease in income	$ 45,000.00

It is assumed that fixed selling expense will continue to occur

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In: AccountingOneco Industries manufactures two products: Works and Best. Theresults of operations for 20x1 follow.Works...Oneco Industries manufactures two products: Works and Best. Theresults of operations for 20x1 follow.WorksBestTotalUnits15,0004,00019,000Sales revenue$420,000$760,000$1,180,000Less: Cost of goods sold330,000420,000750,000Gross Margin$90,000$340,000$430,000Less: Selling expenses90,000210,000300,000Operating income (loss)$0$130,000$130,000Fixed manufacturing costs included in cost of goods sold amount to$2 per unit for Works and $30 per unit for Best. Variable sellingexpenses are $3 per unit for Works and $30 per unit for Best;remaining selling amounts are fixed.Oneco Industries wants to drop the Works product line. If the lineis dropped, company-wide fixed manufacturing costs would fall by20% because there is no alternative use of the facilities. Whatwould be the impact on operating income if Works isdiscontinued?Multiple Choice$45,000 increase.$45,000 decrease.$30,000 increase.$0.None of the answers is correct.