TB MC Qu. 14-59 Omar Industries manufactures two products... Omar Industries manufactures two...
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Accounting
TB MC Qu. 14-59 Omar Industries manufactures two products...
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.
| Regular | Super | Total | |||||||||
| Units | 12,000 | 3,900 | 15,900 | ||||||||
| Sales revenue | $ | 312,000 | $ | 819,000 | $ | 1,131,000 | |||||
| Less: Cost of goods sold | 240,000 | 468,000 | 708,000 | ||||||||
| Gross Margin | $ | 72,000 | $ | 351,000 | $ | 423,000 | |||||
| Less: Selling expenses | 72,000 | 180,000 | 252,000 | ||||||||
| Operating income (loss) | $ | 0 | $ | 171,000 | $ | 171,000 | |||||
Fixed manufacturing costs included in cost of goods sold amount to $4 per unit for Regular and $20 per unit for Super. Variable selling expenses are $5 per unit for Regular and $20 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 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
Multiple Choice
$0.
$12,600 increase.
$12,000 increase.
$47,400 decrease.
None of the answers is correct.
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