Benace Parts and Supply makes a variety of car parts. The company produces A90 parts each year. Each A90 sells for and has a contribution margin of . Currently, of fixed manufacturing overhead is allocated to the A90 product line. If Benace Parts and Supply discontinues the A90 product line, of fixed manufacturing overhead costs would be avoided. What would be the impact on total operating income if the A90 product line were to be discontinued?

The total Operating income will decrease by $5,000

Explanation:

Note that some word are missing and are inserted as written below:

"Benace Parts and Supply makes a variety of car parts. The company produces 6,000 A90 parts each year. Each A90 sells for $7 and has a contribution margin of $2. Currently, $16,000 of fixed manufacturing overhead is allocated to the A90 product line. If Benace Parts and Supply discontinues the A90 product line, $7,000 of fixed manufacturing overhead costs would be avoided. What would be the impact on total operating income if the A90 product line were to be discontinued? "

Solution:

Loss of Contribution margin if the A90 product line discontinued = Units * Contribution margin per unit  

= 6,000 units * $2

= $12,000

Saving of avoidable fixed Overhead = $7,000

Decrease in Total Operating Income = Loss of Contribution margin - Saving of avoidable fixed Overhead

= $12,000 - $7.000

= $5,000 (Decrease)

Hence, the total Operating income will decrease by $5,000

i think the answer to your question is b. directive

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