Clothing Retail Store's accountant prepared the following income statement for the teenagers' accessories product line: Sales Less: Variable expenses Contribution margin Less: Fixed expenses: Wages Insurance on inventory Advertising Net operating income (loss) $1,116,000 62,000 682,000 Sales $3,100,000 1,457,000 1,643,000 Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has t- created elsewhere for a long-term employee currently earning an annual salary of $106,000 Fixed expenses 1,860,000 $ (217,000) Required: Calculate the increase or decrease in the operating income in both alternatives. Keep Accesories Product Line Drop Accesories Product Line
Clothing Retail Store's accountant prepared the following income statement for the teenagers' accessories product line: Sales Less: Variable expenses Contribution margin Less: Fixed expenses: Wages Insurance on inventory Advertising Net operating income (loss) $1,116,000 62,000 682,000 Sales $3,100,000 1,457,000 1,643,000 Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has t- created elsewhere for a long-term employee currently earning an annual salary of $106,000 Fixed expenses 1,860,000 $ (217,000) Required: Calculate the increase or decrease in the operating income in both alternatives. Keep Accesories Product Line Drop Accesories Product Line
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Clothing Retail Store's accountant prepared the following income statement for the teenagers' accessories product line:
Sales
Less: Variable expenses
Contribution margin
Less: Fixed expenses:
Wages
Insurance on inventory
Advertising
Net operating income (loss)
Sales
Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has to be
created elsewhere for a long-term employee currently earning an annual salary of $106,000
Fixed expenses
$1,116,000
62,000
682,000
Required:
Calculate the increase or decrease in the operating income in both alternatives.
Net operating income (loss)
$3,100,000
1,457,000
1,643,000
O Yes
O No
1,860,000
$ (217,000)
Should the teenagers' accessories product line be dropped?
Keep Accesories Product Line
Drop Accesories Product Line
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