Problem 6 (10 points): Armor Sports, Inc. has two product lines-baseball bats an
ID: 2518427 • Letter: P
Question
Problem 6 (10 points): Armor Sports, Inc. has two product lines-baseball bats and tennis rackets. The year is as follows: Total Baseball Bats Tennis Racke $600,000 $350,00 $60,00 100.000 $(40,000) ales revenue $950,000 ariable costs ontribution margin ixed costs perating income (490,000) $460,00 $400,00 loss $330,000 What is the effect of dropping tennis rackets line on the operating income of the company? (Assume that $20,000 fixed costs is avoidable and that there would be no adverse effect on other sales.)Explanation / Answer
Problem 6
Effect of dropping tennis rackets line on the operating income of the company - Operating income reduces by 40,000
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Problem 8
Incremental selling price = 8.2 - 4.8 = 3.4
Incremantal sales = 150,000 * 3.4 = 510,000
Incremental further processing cost = 270,000
Affect on operating income = 510,000 - 270,000 = 240,000
Affect on operating income = Operating income increases by 240,000
Contribution margin lost (60,000) Avoidable fixed costs 20,000 Loss from dropping the product line (40,000)