Lusk Corporation produces and sells 15,600 units of Product X each month. The se

Question

Lusk Corporation produces and sells 15,600 units of Product X each month. The selling price of Product X is $26 per unit, and variable expenses are $20 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $106,000 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:

Explanation / Answer

Hence financial disadvantage=(73000-12400)=$60600.

Current Proposed Sales (15600*26)=$405600 - Variable costs (15600*20)=$312000 - Contribution margin $93600 - Fixed costs 106000 73000 Net operating income (12400) (73000)

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