The Managers of Adamson Apple Co

Multiple Choice

The managers of Adamson Apple Co. are considering dropping one of their product lines. The product line typically has the following revenue and costs: Sales $100,000
Variable costs 80,000
Contribution margin 20,000
Fixed costs 25,000
Operating loss $ (5,000)
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