Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $63,000...

 

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Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $63,000 as follows: Drafty Model Sales revenue Less: Variable costs Contribution margin Less: Direct fixed costs Segment margin Less: Common fixed costs Net operating income (loss) $ 200,000 140,000 $ 60,000 45,000 $ 15,000 78,000 $ (63,000) Eliminating the Drafty product line would eliminate $45,000 of direct fixed cost. The $78,000 of common fixed costs would be redistributed to Blowing Sand's remaining product lines. Required: Will Blowing Sand's net operating income increase or decrease if the Drafty model is eliminated? By how much? Blowing Sand Company produces the Drafty model fan, which currently has a net loss of $63,000 as follows: Drafty Model Sales revenue Less: Variable costs Contribution margin Less: Direct fixed costs Segment margin Less: Common fixed costs Net operating income (loss) $ 200,000 140,000 $ 60,000 45,000 $ 15,000 78,000 $ (63,000) Eliminating the Drafty product line would eliminate $45,000 of direct fixed cost. The $78,000 of common fixed costs would be redistributed to Blowing Sand's remaining product lines. Required: Will Blowing Sand's net operating income increase or decrease if the Drafty model is eliminated? By how much?

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Impact of Eliminating Drafty Model Fan Analysis Currentlythe Drafty model has a segment margin contr... View the full answer