Lusk Corporation produces and sells 13,700 units of Product X each month. The selling price of Product X is $19 per unit, and variable expenses are $13 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $72,000 of the $102,000 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. increase by $49,800 per month
b. decrease by $52,200 per month
c. decrease by $49,800 per month
d. increase by $19,800 per month

If Product X is discontinued, the annual financial disadvantage for the company of eliminating this product will be: decrease by $82,200 per month.

Explanation:

Total sales of Product X = $19 x 13,700 = $260,300

Total variable expenses of Product X = $13 x 13,700 = $178,100

Total sales of Product X - Total variable expenses of Product X = $260,300 - $178,100 = $82,200

$72,000 of the $102,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued.

Therefore, if Product X is discontinued, the annual financial disadvantage for the company of eliminating this product will be: decrease by $82,200 per month.

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