Reference no: EM132530653

The managers of Adamson Apple Co. are considering dropping one of their product lines. The product line typically has the following revenue and costs:

Sales $100,000

Variable costs 80,000

Contribution Margin 20,000

Fixed Costs 25,000

Operating loss ($5,000)

Question 1: If the production line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $4,000 of additional contribution margin from the expansion of other product lines. If Adamson discontinues the product line, the effect on overall income will be:

Option a). $12,000 decrease

Option b). $8,000 decrease

Option c). $9,000 increase

Option d). $3,000 increase

Option e). none of the above