Lusk Company produces and sells 14,700 units of Product X each month. The sellin

Question

Lusk Company produces and sells 14,700 units of Product X each month. The selling price of Product X is $29 per unit, and variable expenses are $23 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $102,000 in fixed expenses charged to Product X would continue even if the product was discontinued. These data indicate that if Product X is discontinued, the company's overall net operating income would:

decrease by $59,200 per month

increase by $13,800 per month

increase by $42,800 per month

decrease by $42,800 per month

Explanation / Answer

Contribution from The product = (29 - 23) * 14700 = 88200

(-) Fixed cost 29000 (102000 - 73000)

Overall Net income would decrease by $ 59200 (per month)

Conclusion:- if Product X is discontinued, the company's overall net operating income would decrease by $59,200 per month.

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