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Suppose Smiley O is considering discontinuing its special oats product line. Assume that during the...

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Accounting

Suppose Smiley O is considering discontinuing its special oats product line. Assume that during the past year, the
special oats' product line income statement showed the following:
(Click the icon to view the income statement data.)(i)(Click the icon for additional information.)
If the company decides to discontinue the product line, what will happen to the company's operating income? Should
Smiley O discontinue the special oats product line?
Begin by preparing a contribution margin income statement for the special oats' product line. (Use a minus sign or
parentheses to enter a loss.)
Sales revenue
Less:
Contribution margin
Less:
Operating income (loss)
More into
Fixed manufacturing overhead costs account for 40% of the cost of goods, while
only 30% of the operating expenses are fixed. Since the special oats line is just
one of the company's cereal operations, only $725,000 of direct fixed costs (the
majority of which is advertising) will be eliminated if the product line is
discontinued. The remainder of the fixed costs will still be incurred by the company.
Data table
image

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