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L Corporation produces and sells 15,500 units of Product X each month. The selling price of Product X is $25 per unit, and variable expenses are $19 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $74,000 of the $105,000 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:

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Answer:

The loss if discontinued will be 74,000

If keeps production it will lose 12,000

It will lose 62,000 more if discontinues

It is a disadvantage to eliminate this product.

Explanation:

units of X 15,500

unit sales price 25

unit variable cost 19

contribution per unit 6

contribution for X 93,000

105,000 fixed cost

operating result:   -12,000

If discontinued then the result will be -74,000

Because, those fixed cost would not be avoidable even if the product was discontinued.

So the annual fiancial disadvantage will be (-74,000) - (-12,000) = -62,000

It will lose 62,000 more cash if discontinues

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