Stephens, Inc. is considering dropping a product line. During the prior year, the line had sales of $170,000, variable costs of $86,000 and total fixed expenses of $110,000. Of the fixed expenses, $95,000 are avoidable. If Stephens drops the product line, net operating income will ______.
The company will lose $84,000 in contribution margin ($170,000 - $86,000). If $95,000 of the fixed costs are avoidable, net income will increase by $11,000.
