Use the following information to answer the next two questions: Pottery Unlimited has two product...
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Accounting
Use the following information to answer the next two questions: Pottery Unlimited has two product lines: cups and pitchers. Income statement data for the most recent year follow: Cups Pitchers Total Sales revenue $310,000 $150,000 $460,000 Variable expenses 235,000 120,000 355,000 Contribution margin 75,000 30,000 105,000 Fixed expenses 38,000 38,000 76,000 Operating income (loss) $37,000 $(8,000) $29,000 1. Assuming the Pitcher line at Pottery Unlimited is dropped, total fixed costs remain unchanged, and the space formerly used to produce the Pitcher line is used to double the production of Cups, how will operating income be affected? A) Increase $150,000 B) Increase $45,000 C) Increase $74,000 D) Decrease $45,000 2. Ignore your answer to question 1. If $20,000 of Pottery Unlimited's fixed costs will be eliminated by dropping the Pitcher line, how will operating income be affected? A) Increase $2,000 B) Decrease $20,000 C) Decrease $10,000 D) Increase $12,000
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