Question

Lusk Corporation produces and sells 14,900 units of Product X each month. The selling price of Product X is $31 per unit, and variable expenses are $25 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $113,000 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: g

Answer 1

Answer:

Effect on income= $34,500 decrease

Explanation:

Giving the following information:

Sales= 14,900 units

Selling price= $31 per unit

Variable expenses= $25 per unit.

The study shows that $73,000 of the $113,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued.

First, we need to calculate the current income of Product X.

Net income= 14,900*(31 - 25) - 113,000= -$38,500

Now, the effect of discontinuing the product.

Effect on income= unavoidable fixed costs - current income

Effect on income= - 73,000 + 38,500

Effect on income= $34,500 decrease