Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$7,600,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6,400,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,200,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,500,000
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$(300,000)

Suppose O'Ray is considering dropping its sweet potato fries product line. Assume that during the past year, the sweet potato fries product line income statement showed the following:

Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the sweet potato fries line is only one of

O'Ray's french fries, only $770,000 of direct 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 O'Ray. If the company decides to drop the product line, what will happen to the company's operating income? Should O'Ray drop the product line? Prepare an incremental analysis to show how dropping the sweet potato fries product line will affect O'Ray's operating income. (Use parentheses or a minus sign for a decrease in operating income.)

O'Ray
Analysis of Dropping the Sweet Potato Fries Product Line
	Expected decrease in revenues
	Expected decrease in expenses:
	Variable expenses
	Fixed expenses
	Expected decrease in total expenses
	Expected increase (decrease) in operating income

If O'Ray drops the sweet potato fries product line, it will .........gain lose $........of income. Therefore,O'Ray's ............drop this product line.