Question

Chapter 12 Quiz 0 Seved Help Save & Exit Submit TB MC Qu. 12-59 Lusk Corporation produces and sells ... Lusk Corporation produces and sells 15,300 units of Product X each month. The selling price of Product X is $23 per unit, and variable expenses are $17 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $74,000 of the $103.000 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: 3.12 points (8 01:15:53 Multiple Choice O $62.800) o $1.200 O S40.200 ($40.200)

Answer 1

Contribution Margin Less: Variable expenses Fixed expenses Continue Discontinue Difference Workings / Explanation Contribution lost if $ 91,800 $ - $ (91,800) (15,300 units * $ 6 ($ 23 - $ 17)1 discontinued. Hence, it is zero. $ 29,000 $ - $ 29,000 $ 103,000 - $ 74,000) Zero, if discontinued $ 74,000 $ 74,000 $ - Given Unavoidable $ (11,200) $ (74,000) $ (62,800) If discontinued, then the loss would increase from ($ 11,200) to ($ 74,000) which would result in a disadvantage of ($ 62,800). Hence, the answer is option first ($ 62,800)

Workings / Explanation Continue Discontinue Difference $ 925,000 $ $ (925,000) $ 406,500 $ - $ 406,500 $ 518,500 $ . $ (518,500) Contribution lost if discontinued Sales Less: Variable expenses Contribution Margin Less: avoidable expenses Fixed manufacturing expenses Fixed selling and administrative expenses Less: Unavoidable expenses Fixed manufacturing expenses Fixed selling and administrative expenses $ 208,500 $ 119,500 $ $ - - $ 208,500 Given $ 119,500 Given Zero, if discontinued Zero, if discontinued $ $ $ 130,500 $ 130,500 $ - ($ 339,000 - $ 208,500) 126,500 $ 126,500 $ - $ 246,000 - $ 119,500) (66,500) $ (257,000) $ (190,500) ($ 339,000 - $ 208,500) ($ 246,000 - $ 119,500) If discontinued, then the loss would increase from ($ 66,500) to ($ 257,000) which would result in a disadvantage of ($ 190,500). Hence, the answer is option fourth ($ 190,500)