Answer: Decrease by $11,200 per year.
Explanation:
First let's calculate the income if the product is not dropped.
Calculting income would be,
= Sales - Variable Costs - Fixed Costs
= 224,000 - 156,800 - 100,800
= -$33,600
Income(loss) would be a ($33,600) if the product is kept.
If the product is discontinued, it is given that $44,800 in fixed costs will still continue.
These fixed costs cannot be covered in part by the Sales because the product will be discontinued. So that means the net operating Income would simply be a $44,800 loss.
The difference between these 2 options is therefore,
= 44,800 - 33,600
= $11,200
This means that if Product A is stopped, the net operating income will decrease by a further $11,200 because there is no revenue to cover the fixed assets in part. The last option is correct.
