The Managers of Adamson Apple Co If the Product Line Is Discontinued, $4,000 of the Fixed

The managers of Adamson Apple Co. are considering dropping one of their product lines. The product line typically has the following revenue and costs: $\begin{array}{lr}\text { Sales } & \$ 100,000 \\\text { Variable costs } & \underline{80,000} \\\text { Contribution margin } & 20,000 \\\text { Fixed costs } & 25,000 \\\text { Operating loss }&\$(5,000) \end{array}$ If the product line is discontinued, $4,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $4,000 of additional contribution margin from the expansion of other product lines. If Adamson discontinues the product line, the effect on overall income will be:

A) $12,000 decrease
B) $8,000 decrease
C) $9,000 increase
D) $3,000 increase

Correct Answer:

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