Lusk Corporation produces and sells 20,000 units of Product X each month. The se

Question

Lusk Corporation produces and sells 20,000 units of Product X each month. The selling price of Product X is $30 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 $50,000 of the $250,000 in fixed expenses charged to product X would not be avoidable even if the product was discontinued. If product X is discontinued, what would happen to the company's overall net operating income? Increase by $20,000 per month increase by $70,000 per month Decrease by $20,000 per month Decrease by $20,000 per month Fabio Corporation is considering eliminating a depertament has that a contribution margin of $ 3.,000 and $60,000 in fixed costs. Of the fixed costs,$15,000 cannot be avoided. What would the effect of eliminating this department on Fabio's overall net operating income be? An increase by $30,000 An increase by $15,000 An Decrease by $15,000 An Derease by $30,000

Explanation / Answer

UNITS SELLING PRICE SALES SALES 20000 30 600000 VARIABLE COST 21 420000 CONTRIBUTION 180000 FIXED COST 250000 EBIT -70000 IF PRODUCT X DISCINTINUE LOSS OF 70000 WOULD BE AVOIDED BUT FIXED COST OF 50000 IS UNAVOIDABLE SO LOSS WOULD BE REDUCED BY 20000 I.E INCOME INCREASED BY 20000 50000 ANSWER IS A INCREASE BY 20000 PER MONTH 16 B INCOME WILL INCREASE BY 15000 CONTRIBUTION MARGIN 30000 FIXED COST 60000 EBIT -30000 IF BUSINESS DISCONTINUE COMPANY NET INCOME INCREASED NY 30000 BY AVOIDING A LOSS OF 30000 BUT UN AVOIDABLE COST IS 15000 S0 LOSS CAN BE REDUCED ONLY 30000 - 15000 =15000 SO NET INCOME WILL INCREASE ONLY BY 15000 ANSWER IS B 17 RAW MATERIAL WOULD BE DEBITED BY 85440 BECAUSE IT IS OF THE NATURE OF ASSETS ANSWER IS D 18 ANSWER IS D

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