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Suppose Creamy Oat is considering discontinuing its tasty loops product line. Assume that during the...

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Accounting

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Suppose Creamy Oat is considering discontinuing its tasty loops product line. Assume that during the past year, the tasty loops' product line income statement showed the following: (Click the icon to view the income statement data.) (Click the icon for additional information.) If the company decides to discontinue the product line, what will happen to the company's operating income? Should Creamy Oat discontinue the tasty loops product line? Begin by preparing a contribution margin income statement for Data Table More Info Sales revenue Less: Variable expenses Contribution margin A B Less: 1 Sales revenue $ 7,700,000 Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the tasty loops line is just one of the company's cereal operations, only $760,000 of direct fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by the company. 2 Less: Cost of goods sold 6,300,000 Operating income (loss) 3 Gross profit 4 Less: Operating expenses 1,400,000 1,500,000 (100,000) 5 Operating income (loss) $ Print Done Print Done

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