Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year is as follows:| | Total | Luxury | Sporty ||------------------------|----------|---------|---------|| Sales revenue | $530,000 | $400,000| $130,000|| Variable expenses | 375,000 | 255,000 | 120,000 || Contribution margin | 155,000 | 145,000 | 10,000 || Fixed expenses | 80,000 | 40,000 | 40,000 || Operating income (loss)| $75,000 | $105,000| $(30,000)|Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected?Select one:- A. Increase $282,500- B. Increase $362,500- C. Increase $207,500- D. Decrease $207,500

Incremental Analysis :— This analysis shows the comparison between two different alternatives. A comparison is made by deducting Alternative 1 from Alternative 2. Incremental revenue is the difference between revenues of different alternatives. Incremental cost is the difference between the costs of different alternatives.Total Contribution Margin for Luxury after Discontinuing Sporty Division [145,000+($145,000*250%)]$507,500Less :— Fixed Cost of Luxury Division ($40,000)Less :— Unavoidable Fixed Cost ($40,000)Net Income After Discounting Sporty Division $427,500Add :— Contribution Margin of Sporty Division $10,000Less :— Operating Income Before Such Change ($75,000)Increase in Net Operating Income $362,500REQUIREMENT # :— FINAL ANSWERRequirement #1 :— Operating Income Increased By $362,500So, The Correct Option is #B - $362,500

Business

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។ Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss) Total $530,000 375,000 155,000 80,000 $75,000 Select one: O A. Increase $282,500 OB. Increase $362,500 O C. Increase $207,500 O D. Decrease $207,500 Luxury $400,000 255,000 145,000 40,000 $105,000 Sporty $130,000 120,000 10,000 40,000 $(30,000) Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected?

។ Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: Sales revenue Variable expenses Contribution margin Fixed expenses Operating income (loss) Total $530,000 375,000 155,000 80,000 $75,000 Select one: O A. Increase $282,500 OB. Increase $362,500 O C. Increase $207,500 O D. Decrease $207,500 Luxury $400,000 255,000 145,000 40,000 $105,000 Sporty $130,000 120,000 10,000 40,000 $(30,000) Assuming the Sporty line is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the Sporty line is used to increase the production of Luxury watches by 250%, how will operating income be affected?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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