Lakeside Inc. Operating Income Calculation

Question:

If Lakeside, Inc. discontinues the fishing kayak, what is the total increase (decrease) in operating income?

Answer:

The total increase or decrease in operating income if Lakeside, Inc. discontinues the fishing kayak can be calculated by comparing the operating income with and without the fishing kayak.

To calculate the total increase or decrease in operating income, we need to compare the operating income with and without the fishing kayak. Let's break down the calculation:

Operating income with the fishing kayak:

This includes the fixed manufacturing expenses related to the fishing kayak, which is $10,000 for depreciation on the machine. It also includes the shared manufacturing expenses and fixed selling and administrative expenses.

Operating income without the fishing kayak:

This includes the shared manufacturing expenses and fixed selling and administrative expenses, excluding the $10,000 depreciation and $70,000 avoidable expenses.

Calculate the difference: Subtract the operating income without the fishing kayak from the operating income with the fishing kayak.

By calculating this difference, we can determine the total increase or decrease in operating income if Lakeside, Inc. discontinues the fishing kayak.