Suppose Crispy Pop is considering discontinuing its fruit and nuts product line. Assume that during the past year, the fruit and nuts' 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 Crispy Pop discontinue the fruit and nuts product line? Begin by preparing a contribution margin income statement for the fruit and nuts' product line. (Use a minus sign or parentheses to enter a loss.) Sales revenue Less: Variable expenses Contribution margin 5250000 Data table Less: Fixed expenses Operating income (loss) More info Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the fruit and nuts line is just one of the company's fruit operations, only $775,000 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. A B 1 Sales revenue $ 5,250,000 - X 2 Less: Cost of goods sold 3 Gross profit 6,000,000 (750,000) 4 Less: Operating expenses 1,550,000 $ (2,300,000) 5 Operating income (loss) Print Done more help Print Done - - X Clear all Check a
Suppose Crispy Pop is considering discontinuing its fruit and nuts product line. Assume that during the past year, the fruit and nuts' 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 Crispy Pop discontinue the fruit and nuts product line? Begin by preparing a contribution margin income statement for the fruit and nuts' product line. (Use a minus sign or parentheses to enter a loss.) Sales revenue Less: Variable expenses Contribution margin 5250000 Data table Less: Fixed expenses Operating income (loss) More info Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the fruit and nuts line is just one of the company's fruit operations, only $775,000 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. A B 1 Sales revenue $ 5,250,000 - X 2 Less: Cost of goods sold 3 Gross profit 6,000,000 (750,000) 4 Less: Operating expenses 1,550,000 $ (2,300,000) 5 Operating income (loss) Print Done more help Print Done - - X Clear all Check a
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Suppose Crispy Pop is considering discontinuing its fruit and nuts product line. Assume that during the past year, the fruit and nuts' 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 Crispy Pop discontinue the fruit and nuts product line?
Begin by preparing a contribution margin income statement for the fruit and nuts' product line. (Use a minus sign or parentheses to enter a loss.)
Sales revenue
Less:
Variable expenses
Contribution margin
5250000
Data table
Less: Fixed expenses
Operating income (loss)
More info
Fixed manufacturing overhead costs account for 40% of the cost of goods, while
only 30% of the operating expenses are fixed. Since the fruit and nuts line is just
one of the company's fruit operations, only $775,000 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.
A
B
1 Sales revenue
$
5,250,000
- X
2 Less: Cost of goods sold
3 Gross profit
6,000,000
(750,000)
4 Less: Operating expenses
1,550,000
$ (2,300,000)
5 Operating income (loss)
Print
Done
more help
Print
Done
- - X
Clear all
Check a
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