Omar industries manufactures two products: regular and super. the results of operations for 20x1 follow.
regular super
total units 10,000 4,700 14,700
sales revenue $ 260,000 $ 987,000 $ 1,247,000
less:
cost of goods sold 200,000 658,000 858,000
gross margin $ 60,000 $ 329,000 $ 389,000
less:
selling expenses 60,000 189,000 249,000
operating income (loss) $ 0 $ 140,000 $ 140,000
fixed manufacturing costs included in cost of goods sold amount to $3 per unit for regular and $30 per unit for super.
variable selling expenses are $4 per unit for regular and $30 per unit for super; remaining selling amounts are fixed.
required:
1. 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?