Lusk Corporation produces and sells 15,700 units of Product X each month. The selling price of Product X is $27 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $107,000 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:

Question

Dirty Harry

Business

3 May, 19:26

Lusk Corporation produces and sells 15,700 units of Product X each month. The selling price of Product X is $27 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $107,000 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:

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Answers (1)

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Jace Cannon · Answer 1

If product X is discontinued, the company net income will decrease by $59,200

Explanation:

Giving the following information:

Units sold = 15,700 units

Contribution margin per unit = 27 - 21 = $6

$72,000 of the $107,000 in monthly fixed expenses are not avoidable.

Today, the company is losing $12,800 a month in product X.

Effect on income = - fixed costs - actual loss

Effect on income = - 72,000 + 12,800 = - $59,200

If product X is discontinued, the company net income will decrease by $59,200