What would be the impact on net operating income

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Question - HiTech manufactures two products fitness bands and heart rate monitors. The company has prepared the following income statement (using absorption costing) for 2015:


Fitness Bands

Heart Rate Monitors

Total

Sales

$240,000

$740,000

$980,000

Less COGS

$180,000

$481,000

$661,000

Gross Margin

$60,000

$259,000

$319,000

Less selling and Adm expenses

$60,000

$134,000

$194,000

Net operating income

-

$125,000

$125,000

Number of unit produced and sold

10,000

3,700

13,700

Fixed manufacturing costs included in cost of good sold amount to $3 per unit for the fitness bands and $20 per unit for the heart rate monitors. Variable selling expenses are $4 per unit for the fitness bands and $20 per unit for the heart rate monitors; remaining selling and administrative expenses are fixed.

HiTech wants to drop the line of fitness bands. If the line were to be dropped company-wide fixed manufacturing costs would fall by 10%. What would be the impact on net operating income if the fitness band line is discontinued? (Positive, Negative)?

Reference no: EM131715438

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