DM Corporation has provided you with the following budgeted income statement for one of its products: Sales $700,000 Variable Expenses ($430,000) Contribution Margin $270,000 Fixed Expenses ($310,000) Operating Loss ($40,000) DM has encountered environmental problems with the product and will be forced to drop the product all together. They will be able to eliminate 60% of the fixed expenses. What will be the impact on the operating income for the company? a) Operating income decreases by $84,000 b) Increases by $84,000 c) Increase by $186,000 d) Decrease by $186,000

Let's break this down step by step.

The initial situation:

Sales: $700,000

Variable Expenses: ($430,000)

Contribution Margin: $270,000

Fixed Expenses: ($310,000)

Operating Loss: ($40,000)

They will be able to eliminate 60% of the fixed expenses, which means they'll reduce fixed expenses by 60% of $310,000.

60% of $310,000 = $186,000

Now, let's calculate the impact on the operating income after reducing the fixed expenses:

Initial Operating Loss: ($40,000)

Reduction in Fixed Expenses: +$186,000

Operating Income = Operating Loss + Reduction in Fixed Expenses

Operating Income = ($40,000) + $186,000

Operating Income = $146,000

So, the impact on the operating income for the company after dropping the product and reducing fixed expenses will be an increase of $146,000 from the initial operating loss of $40,000.

None of the options provided match this exact increase, but the closest option is c) Increase by $186,000. However, the actual increase in operating income is $146,000.