Lusk Corporation produces and sells 10,000 units of Product X each month. The se

Question

Lusk Corporation produces and sells 10,000 units of Product X each month. The selling price of Product X is $40 per unit, and variable expenses are $32 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $70,000 of the $120,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the annual financial advantage (disadvantage) for the company of eliminating this product should be: ($30,000) $30,000 $40,000 ($40,000) Part 2: In a special order situation that involves using capacity that is not idle, opportunity costs are zero. True False

Explanation / Answer

Loss in contribution margin -80000 =10000*(32-40) Avoidable fixed costs 50000 =120000-70000 Financial advantage (disadvantage) -30000 Option 1 is correct 2 False, In a special order situation that involves using capacity that is not idle, opportunity costs are not zero

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