Question

If this product line is eliminated, 60% of the fixed expenses are traceable fixed expenses, which can be eliminated and the other 40% are common fixed expenses that cannot be avoided. If management decides to eliminate this product line, the company's net income will ________.

Answer 1

decrease by $6,000

Step-by-step explanation:

sales $215,000

variable expenses ($125,000)

contribution margin $90,000

fixed expenses ($140,000)

net loss ($50,000)

if this product line is eliminated, 40% of total fixed expenses will remain = 40% x $140,000 = $56,000

that means that the company's net income will change = remaining fixed costs - net results from product line = -$56,000 - (-$50,000) = -$56,000 + $50,000 = -$6,000

net income will decrease by $6,000

Answer 2

Answer: decrease by $6000

Step-by-step explanation:

Because 60% of the fixed expenses are traceable fixed expenses