Homework question

Suppose Kellogg's is considering dropping its Special - K product line. Assume that during the past year, Special - K's product line income statement showed the following: (Click the icon to view the income statement data.) Fixed manufacturing overhead costs are $2,560,000 and variable manufacturing overhead costs are $3,840,000. Fixed operating expenses are $420,000 and variable operating expenses are $980,000. Since the Special - K line is only one of Kellogg's breakfast cereals, only $750,000 of fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by Kellogg's. If the company decides to drop the product line, what will happen to the company's operating income? Should Kellogg's drop the product line? Prepare an incremental analysis to show how dropping the Special - K product line will affect Kellogg's operating income. (Use parentheses or a minus sign for a decrease in operating income.) Kellogg i Data Table - X Analysis of Dropping the Special-K Product Line Expected decrease in revenues Expected decrease in expenses: Sales . . . . . $ 7,600,000 Variable expenses Cost of goods sold. . 6,400,000 Fixed expenses Gross profit . . . . 1,200,000 Expected decrease in total expenses Operating expenses 1,400,000 . . . . . . Expected increase (decrease) in operating income $ (200,000) Operating 105S . . . . . . . . . . . . . .. .statisticsissa If Kellogg's drops the Special - K product line, it will $of income. Therefore, Kellogg's drop this product line. Print Done Enter any number in the edit fields and then continue to the next