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    Continue or discontinue a Product Line

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    A study has been conducted to determine if a product line should be discontinued. The contribution margin in the product line is $300,000 per year. Fixed expenses allocated to the product line are $390,000 per year. It is estimated that $240,000 of these fixed expenses could be eliminated if the product line is discontinued. What happens to the company's overall net operating income? Does it increase or decrease, and by how much?

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    Net operating income=Contribution margin-Fixed expenses

    Now ...

    Solution Summary

    Solution calculates the effect on net operating income if a production line is discontinued.