Question

g "Seidman Company manufactures and sells 30,000 units of product X per month. Each unit of product X sells for $16 and has a contribution margin of $7. If product X is discontinued, $85,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company's other products. If product X is discontinued, Seidman Company's monthly income before taxes should:"

Answer 1

Answer:

Decreased by $125,000

Explanation:

Calculation for Seidman Company's monthly income before taxes should:"

First step is to find the loss in contribution margin using this formula

Loss in contribution margin = Sales unit× contribution margin

Let plug in the formula

Loss on contribution margin=30,000 × $ 7

= ($210,000)

Second step

Fixed monthly overhead = $85,000

Monthly income before taxes =Loss in contribution margin - Fixed monthly overhead

Monthly income before taxes= ($210,000) - $85,000

Monthly income before taxes= $125,000

Thereforre in a situation where product X is discontinued, this means that Seidman Company's monthly income before taxes would get decreased by $125,000