Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter

ACCOUNTING

Multiple Choice

Camera Corner is considering eliminating Model AE2 from its camera line because of losses over the past quarter. The past three months of information for Model AE2 are summarized below.



Sales (1,000 units) $300,000

Manufacturing costs:

Direct materials 150,000

Direct labor ($15 per hour) 60,000

Overhead 100,000

Operating loss ($10,000)



Overhead costs are 70% variable and the remaining 30% is depreciation of special equipment for model AE2 that has no resale value.



If Model AE2 is dropped from the product line, operating income will

a. increase by $10,000.

b. decrease by $20,000.

c. increase by $30,000.

d. decrease by $10,000.


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