Question

A company has three product lines, one of which reflects the following results:Sales 215,000Variable expenses 125,000Contribution margin 90,000Fixed expenses 140,000Net loss (50,000)If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company's net income will:__________. a. increase by $50,000 b. decrease by $90,000 c. decrease by $6,000 d. increase by $6,000

Answer 1

c. decrease by $6,000

Step-by-step explanation:

The computation of the company net income is shown below:

Sales $215,000

Less: Variable expenses ($125,000)

Contribution margin $90,000

Less: Fixed expenses(traceable) ($84,000) ($140,000 × 0.60)

Net Income $ 6,000

And, the given net loss is $50,000

The fixed expense is $56,000 ($140,000 × 0.40)

So, the net income would decrease by $6,000

Hence, the correct option is c.