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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 per hour) 60,000 Overhead 100,000 Operating loss ($10,000) Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value. If Model AE2 is dropped from the product line, operating income will:

Respuesta :

adeambrossi

Answer:

It will decrease by $20,000.

Explanation:

In this exercise the resolution is:

$300,000 –$150,000 –$60,000 –$70,000 = $20,000  

This product contributes $20,000 toward corporate profits, therefore, discontinuing this product will decrease operating income by $20,000.

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