TB MC Qu. 14-59 Omar Industries manufactures two products... Omar Industries manufactures two...
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Accounting
TB MC Qu. 14-59 Omar Industries manufactures two products...
Omar Industries manufactures two products: Regular and Super. The results of operations for 20x1 follow.
Regular
Super
Total
Units
12,000
3,900
15,900
Sales revenue
$
312,000
$
819,000
$
1,131,000
Less: Cost of goods sold
240,000
468,000
708,000
Gross Margin
$
72,000
$
351,000
$
423,000
Less: Selling expenses
72,000
180,000
252,000
Operating income (loss)
$
0
$
171,000
$
171,000
Fixed manufacturing costs included in cost of goods sold amount to $4 per unit for Regular and $20 per unit for Super. Variable selling expenses are $5 per unit for Regular and $20 per unit for Super; remaining selling amounts are fixed. Omar Industries wants to drop the Regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
Multiple Choice
$0.
$12,600 increase.
$12,000 increase.
$47,400 decrease.
None of the answers is correct.
Answer & Explanation
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