Lusk Company produces and sells 15,000 units of Product A each month. The sellin

Question

Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A                 study has been made concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would                 continue even if the product was discontinued. These data indicate that if Product A is discontinued, the company's overall net operating income would: A) decrease                 by $60,000 per month B) increase by $10,000 per month C) increase by $20,000 per month D) decrease by $20,000 per month

i know the answer is 60k but could someone explain the process to get the answer

Explanation / Answer

Hi,

Please find the answer as follows;

Option A ( decrease by $60,000 per month) is correct.

Thanks,

When Continued When Discontinued Difference Sales (15000*20) 300000 0 -300000 Variable Cost (15000*14) 210000 0 -210000 Contribution 90000 0 -90000 Fixed Cost 100000 70000 -30000 Net Operating Income -10000 -70000 -60000

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