Riverside Industries has three product lines: A,B and C.The following information is available: Riverside Industries is thinking about dropping Product C because it is reporting a loss.Assume Riverside Industries drops Product C and does not replace it.What will happen to operating income?
A)increase $600
B)increase $2,400
C)decrease $6,000
D)decrease $9,000

Question

Riverside Industries has three product lines: A,B and C.The following information is available:  Riverside Industries is thinking about dropping Product C because it is reporting a loss.Assume Riverside Industries drops Product C and does not replace it.What will happen to operating income?
A)increase $600 
B)increase $2,400 
C)decrease $6,000 
D)decrease $9,000

Quizplus · Accepted Answer

If Riverside Industries drops Product C, it will lose the contribution margin of that product. According to the information provided, the contribution margin of Product C is $6,000 ($40,000 - $34,000). Therefore, if Product C is dropped, the operating income will decrease by $6,000.

Riverside Industries Has Three Product Lines: A,B and C