Question

Lusk Corporation produces and sells 14,000 units of Product X each month. The selling price of Product X is $22 per unit, and variable expenses are $16 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $103,000 in fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the company’s overall net operating income would: decrease by $49,000 per month increase by $49,000 per month decrease by $54,000 per month increase by $19,000 per month

Answer 1

Answer:

decrease by $54,000 per month

Explanation:

The impact on the net operating income would be shown below:

In the first case,

Sales ( $22 × 14,000 units) = $308,000

Variable expenses ($16 × 14,000 units) = - $224,000

Fixed expenses = - $103,000

Net loss = - $19,000

And, the fixed cost continued is $73,000

So, the net income decreased by

= $73,000 - $19,000

= $54,000

if the product X is discontinued