Lusk Company produces and sells 15,900 units of Product X each month. The sellin
ID: 2473947 • Letter: L
Question
Lusk Company produces and sells 15,900 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 $71,000 of the $109,000 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:
rev: 10_16_2014_QC_56453
increase by $51,600 per month
increase by $13,600 per month
decrease by $51,600 per month
decrease by $57,400 per month
Two alternatives, code-named X and Y, are under consideration at Brahler Corporation. Costs associated with the alternatives are listed below.
What is the differential cost of Alternative Y over Alternative X, including all of the relevant costs?
$31,000
$135,500
$120,000
$151,000
Lusk Company produces and sells 15,900 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 $71,000 of the $109,000 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:
Explanation / Answer
1.
Contribution margin per unit = Sale price - variable cost per unit = $29 - $23 = $6 per unit
Total contribution margin = Cobtribution per unit * number of units = $6 * 15,900 =$95,400
Net income(loss ) = Total contribution - fixed cost = $95,400 - 109,000 = ($13,600)
Loss if the product X is discontinued = $71,000 (Unadvoidable fixed cost)
Total profit decrease = $71,000 - $13,600 = $57,400
So D is the correct option As the net operating income decrease by $57,400
2. All relevant cost = Material cost + processing cost + Equipment rental + occupancy cost
Alternative X = 42,000 + 47,000 + 13,000 + 18,000 = $120,000
Alternative Y = 42,000 + 62,500 +13,000 +33,500 = $ 151,000
So the differential cost of Alternative Y over Alternative X = $151,000 - $120,000 = $31,000
So A is the correct option
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.