Boots Plus has two product lines: Hiking boots and Fashion boots. Income statement data for the most recent year follow: Total Hiking Fashion Sales revenue $480,000 $340,000 $140,000 Variable expenses 355,000 235,000 120,000 Contribution margin 125,000 105,000 20,000 Fixed expenses 76,000 38,000 38,000 Operating income (loss) $49,000 $67,000 $(18,000) If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, how will operating income be affected for the company as a whole

The operating income will increase by $ 25000.The new net profit would be $ 92000.

Explanation:

Boots Plus

Income Statement

                                         Total               Hiking             Fashion

Sales revenue              $480,000        $340,000          $140,000

Variable expenses        355,000           235,000            120,000

Contribution margin        125,000           105,000             20,000

Fixed expenses                76,000              38,000            38,000

Operating income (loss) $49,000            $67,000          $(18,000)

If $25,000 of fixed costs will be eliminated by discontinuing the Fashion line, the new income statement will be as follows

Boots Plus

Income Statement

                                               Hiking            

Sales revenue                      $340,000        

Variable expenses                235,000          

Contribution margin               105,000            

Fixed expenses                       13000=  38,000- $ 25000            

Operating income (loss)          $92,000        

The operating income will increase by $ 25000.The new net profit would be $ 92000.

since the options are not listed, when you are working on your budget you should also add water, tv, internet, miscellaneous and your 'fun' money for in your budget. when budgeting, you need to allow for fun money, and mis/accidental money so that you stick to the budget and not go crazy because you feel strapped to the budget.