Question

Seidman Company manufactures and sells 30,000 units of product X per month. Each unit of product X sells for $16 and has a contribution margin of $7. If product X is discontinued, $85,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company's other products. If product X is discontinued, Seidman Company's monthly income before taxes should:

Answer 1

$125,000

Step-by-step explanation:

The computation of monthly income before taxes is shown below:-

Loss in contribution margin = 30,000 units × $ 7

= ($210,000)

Saving in fixed monthly overhead = $85,000

Income before taxes would get decreased = Loss in contribution margin - Saving in fixed monthly overhead

= ($210,000) - $85,000

= $125,000

If product X is discontinued,. Seidman Company's monthly income before taxes would get decreased by $125,000