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Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

-Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
A) $0.
B) $10,400 increase.
C) $20,000 increase.
D) $39,600 decrease.
E) None of the answers is correct.

Question

Use the following information to answer the following Questions
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.

Fixed manufacturing costs included in cost of goods sold amount to $3 per unit for Regular and $20 per unit for Super. Variable selling expenses are $4 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed.

-Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
A) $0. 
B) $10,400 increase. 
C) $20,000 increase. 
D) $39,600 decrease. 
E) None of the answers is correct.

Quizplus · Accepted Answer

If Regular is discontinued, the company would save 10% of its fixed manufacturing costs. However, the loss of contribution margin from the Regular product line would likely exceed these savings, leading to a decrease in operating income.

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