Question

One of Simplex Company’s products has a contribution margin of $44,000 and fixed costs totaling $54,000. If the product is dropped, $37,000 of the fixed costs will continue unchanged. As a result of dropping the product, the company’s net operating income should:

Answer 1

Answer:

Decrease by $27000

Explanation:

Given that

Contribution margin = 44000

Initial fixed cost = 54000

Final fixed cost = 37000

Recall that

Net operating income = Contrubution Margin - Net fixed cost.

NOI = 44000 - (54000 - 37000)

NOI = 44000 - 17000

NOI = $27000

Thus, Net operating income decreased by 27000.