Question

L Corporation produces and sells 15,100 units of Product X each month. The selling price of Product X is $21 per unit, and variable expenses are $15 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $101,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the annual financial advantage (disadvantage) for the company of eliminating this product should be: Multiple Choice $10,400 ($61,600) ($39,400) $39,400

Answer 1

If Product X is discontinued, the company’s overall net operating income would: increase by $61,600

Step-by-step explanation:

Not drop Drop Difference

Sales 317,100 317,100

(15100*21)

Less: Variable expenses 226,500 226,500

(15,100 * 15)

Contribution margin 90,600 90,600

Less: fixed expenses 101,000 72,000 29,000

Net operating income -$10,400 $61600

Conclusion: If Product X is discontinued, the company’s overall net operating income would: increase by $61,600