Reference no: EM131787128

Macaulay Company has three product lines-D,E, and F. The following information is available:

D E F
Sales $70,000 $40,000 $30,000
Variable costs (40,000) (20,000) (10,000)
Contribution margin 30,000 20,000 20,000
Fixed expenses (15,000) (15,000) (25,000)
Operating income (loss) $15,000 $5,000 ($5,000)

Macaulay Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Macaulay Company drops product line F and does not replace it, what effect will this have on operating income?

A. Operating income will increase $25,000

B. Operating income will decrease $20,000

C. Operating income will increase $20,000

D. Operating income will increase $5,000