Question

Seidman Company manufactures and sells 20,000 units of product X per month. Each unit of product X sells for $17 and has a contribution margin of $8. If product X is discontinued, $45,000 in fixed monthly overhead costs would be eliminated and there would be no effect on the sales volume of Seidman Company's other products. If product X is discontinued, Seidman Company's monthly income before taxes should:

Answer 1

Effect on income= $115,000 decrease

Step-by-step explanation:

Giving the following information:

Fixed costs= $45,000

Number of units= 20,000

Unitary contribution margin= $8

To calculate the effect on income, we need to use the following formula:

Effect on income= decrease in fixed costs - decrease in contribution margin

Effect on income= 45,000 - 20,000*8

Effect on income= $115,000 decrease