Reference no: EM133076880
Question - Meditate to Elevate is a wholesaler of gear to yoga studios. The company sells three product? lines: Ujjayi,? Drishti, and Tapas. A traditional departmental income statement for the year ended 12.31.20 is shown? below:
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Ujjayi
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Drishti
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Tapas
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Sales Revenue
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?$100,000
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?$30,000
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?$37,500
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(Cost of Goods? Sold)
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(60,000)
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?(18,000)
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?(30,250)
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Gross Profit
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40,000
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?12,000
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7,250
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(Operating Expenses)
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(30,000)
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?(14,000)
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?(3,375)
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Operating Income
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$10,000
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?$(2,000)
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?$3,875?
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30% of the cost of goods sold for each product line is variable. The remaining cost of goods sold for each product line consists of traceable fixed costs. Operating expenses for each product line include? $2,000 of common fixed costs. The remaining operating expenses consist of variable costs.Due to profitability? concerns, management is considering dropping the Drishti product line. If Drishti is? dropped, the freed up capacity would be used to expand? Ujjayi's operations. As a? result, Ujjayi's sales volume would increase by? 20%, and its traceable fixed costs would increase by? $5,000 due to costs related to expansion. The loss of Drishti and the expansion of Ujjayi would result in a? 2% decrease in? Tapas's sales volume. What would be the annual change in operating income if Drishti is? dropped?
A. decrease of? $7,717.50
B. increase of? $1,979,00
C. increase of? $5,259.00
D. decrease of? $2,145.00