Reference no: EM132603034
Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter. The past three months of information for Model AE2 are summarized below:
Sales (1,000 units) $300,000
Manufacturing costs:
Direct materials 150,000
Direct labor ($15/hour ) 60,000
Overhead 100,000
Operating loss ($10,000)
Overhead costs are 70% avoidable and the remaining 30% is the depreciation of special equipment that will be used for manufacturing a different model.
Question 1: If Model AE2 is dropped from the product line, operating income will:
Option 1: decrease by $20,000
Option 2: decrease by $10,000
Option 3: increase by $10,000
Option 4: increase by $30,000