HiTech 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 thesE.

Question

Quizplus · Accepted Answer

If the Regular product line is discontinued, the company-wide fixed manufacturing costs would fall by 10%. However, the contribution margin from the Regular product line also needs to be considered. If the contribution margin from the Regular product line is less than 10% of the total company-wide contribution margin, then discontinuing the line would result in a decrease in operating income. On the other hand, if the contribution margin from the Regular product line is greater than 10% of the total company-wide contribution margin, then discontinuing the line would result in an increase in operating income. Therefore, we need more information to determine the impact on operating income. 
Since no information is given about the contribution margin, the only answer choice that reflects a possible decrease in operating income is D, assuming the contribution margin from the Regular product line is greater than 10% of the total company-wide contribution margin.

HiTech Wants to Drop the Regular Product Line