Answered

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Lusk Company produces and sells 15,000 units of Product A each month. The selling price
of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been
made concerning whether Product A should be discontinued. The study shows that
$70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the
product was discontinued. These data indicate that if Product A is discontinued, the
company's overall net operating income would:
A. decrease by $60,000 per month
B. increase by $10,000 per month
C. increase by $20,000 per month
D. decrease by $20,000 per month

Sagot :

The question is about the two products which are making loss and the company is concerning whether one of its product should be discontinued.

Product A :

Selling price $20 per unit  * 15,000 units = $300,000

Less : Variable cost $14 per unit * 15,000 units = $210,000

Less: Fixed Cost = $30,000

Net Income = $60,000

The correct answer is A. decrease by $60,000 per month.

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