Question

TB MC Qu. 12-59 Lusk Corporation produces and sells ...

Lusk Corporation produces and sells 15,700 units of Product X each month. The selling price of Product X is $27 per unit, and variable expenses are $21 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $107,000 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:

Multiple Choice

• ($59,200)

• $12,800

• $47,800

• ($47,800)

Answer 1

Annual financial advantage (disadvantage) = Saving in avoidable fixed cost - Lost of contribution margin

= ($107,000 - $72,000) - ($27 - $21)*15700

= ($59,200)

Option a. is correct answer.