Reference no: EM132603034

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/hour ) 60,000

Overhead 100,000

Operating loss ($10,000)

Overhead costs are 70% avoidable and the remaining 30% is the depreciation of special equipment that will be used for manufacturing a different model.

Question 1: If Model AE2 is dropped from the product line, operating income will:

Option 1: decrease by $20,000

Option 2: decrease by $10,000

Option 3: increase by $10,000

Option 4: increase by $30,000