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27 August, 02:59

Lusk Corporation produces and sells 14,900 units of Product X each month. The selling price of Product X is $31 per unit, and variable expenses are $25 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $73,000 of the $113,000 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: g

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  1. 27 August, 06:06
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    Effect on income = $34,500 decrease

    Explanation:

    Giving the following information:

    Sales = 14,900 units

    Selling price = $31 per unit

    Variable expenses = $25 per unit.

    The study shows that $73,000 of the $113,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued.

    First, we need to calculate the current income of Product X.

    Net income = 14,900 * (31 - 25) - 113,000 = - $38,500

    Now, the effect of discontinuing the product.

    Effect on income = unavoidable fixed costs - current income

    Effect on income = - 73,000 + 38,500

    Effect on income = $34,500 decrease
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