All About Animals has two product lines: Cat food and Dog food. Contribution margin income statement data for the most recent year follow: Total Cat Food Dog Food Sales revenue $85,000 Variable expenses $40,000 Contribution margin $45,000 Fixed expenses $52,000 Operating income (loss) $ $(7,000) Assuming the Dog food is discontinued, total fixed costs remain unchanged, and the space formerly used to produce the line is rented for per year, how will operating income be affected?

Increase in operating income by $12,000

Explanation:

The above is an incomplete question because the value for 'space normally used to produce the rented line' is missing. However, I assumed the value is $26,000 per year as gotten from the internet -Chegg.

Given the above information, the operating income can be affected as calculated below;

Sales revenue $85,000

Add additional revenue $26,000

Total revenue $11,1000

Less: variable expenses ($40,000)

Contribution margin $71,000

Less: fixed expense ($52,000)

New net operating income

$19,000

Less: Original operating income

($7,000)

Increase in operating income

$12,000

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