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Richmond Company is considering eliminating one of its products, product A, which costs $60,000 a year...

Richmond Company is considering eliminating one of its products, product A, which costs $60,000 a year to produce but only provides $55,000 in revenues. Careful analysis shows that two-thirds of the cost could be eliminated by dropping product A. What would be the effect on net income of eliminating product A?

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Answer #1
Loss in Revenues (55000)
Avoidable costs 40000 =60000*2/3
Net change in income (15000)
Effect on net income of eliminating product A = $15,000 decrease
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