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Lusk Company produces and sells 15,200 units of Product X each month.The selling price of Product X is $22 per unit, and variable expenses are $16 per unit.A study has been made concerning whether Product X should be discontinued.The study shows that $73,000 of the $102,000 in fixed expenses charged to Product X would continue, even if the product was discontinued.These data indicate that if Product X is discontinued, the company's overall net operating income would :1. decrease by $62,200 per month2. increase by $10,800 per month3. increase by $39,800 per month4. decrease by $39,800 per month

Respuesta :

Answer:

1. decrease by $62,200 per month

Explanation:

Fixed Cost savings (FC) from discontinuing product A = $102,000 - $73,000  = $29,000

Variable Cost of 15,200 of product A:

[tex]VC = 15,200* \$16 = \$243,200[/tex]

Revenue from selling 15,200 units of product A:

[tex]R = 15,200* \$22 = \$334,400[/tex]

The change in net income is:

[tex]\Delta N=FC+VC-R\\\Delta N=\$29,000+\$243,200-\$334,400\\\Delta N=-\$62,200[/tex]

The company's overall net operating income would decrease by $62,200 per month