Asked by elizabeth odegard on May 01, 2024
Verified
Lusk Corporation produces and sells 10,000 units of Product X each month.The selling price of Product X is $40 per unit, and variable expenses are $32 per unit.A study has been made concerning whether Product X should be discontinued.The study shows that $70,000 of the $120,000 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:
A) ($30,000)
B) $30,000
C) $40,000
D) ($40,000)
Fixed Expenses
Costs that do not vary with the level of production or sales, such as rent, insurance, and salaries.
Variable Expenses
Expenses that change in proportion to the activity of a business, such as sales commissions that rise with increased sales or materials costs that rise with increased production.
Discontinue Product
The decision to stop manufacturing, selling, or supporting a product based on criteria such as sales performance, profitability, or strategic alignment.
- Determine the impact of variable and fixed costs on decisions to discontinue products.
- Understand the importance of avoidable costs when considering the discontinuation of a business segment or product.
Verified Answer
MB
Learning Objectives
- Determine the impact of variable and fixed costs on decisions to discontinue products.
- Understand the importance of avoidable costs when considering the discontinuation of a business segment or product.