Product D incurred a net loss of $40 000 during the most recent accounting period, calculated as follows:
$$\begin{array} { l l }
\text { Sales } & \$ 300000 \
\text { Variable Costs } & ( 150000 ) \
\text { Fixed Costs } & ( 190000 ) \
\text { Net Loss } & \underline { \$ ( 40000 ) }
\end{array}$$ An analysis of the fixed costs reveals that $120 000 are avoidable and $70 000 are unavoidable. Profit for the business would increase or decrease by what amount if Product D is discontinued?

Question

Product D incurred a net loss of $40 000 during the most recent accounting period, calculated as follows:
$$\begin{array} { l l } 
\text { Sales } & \$ 300000 \
\text { Variable Costs } & ( 150000 ) \
\text { Fixed Costs } & ( 190000 ) \
\text { Net Loss } & \underline { \$ ( 40000 ) }
\end{array}$$ An analysis of the fixed costs reveals that $120 000 are avoidable and $70 000 are unavoidable. Profit for the business would increase or decrease by what amount if Product D is discontinued?

Quizplus · Accepted Answer

if discontinued, sales and variable costs will be zero, fixed costs of $70 000 will still be incurred, leading to a loss of $70 000, which is a $30 000 decrease in profit compared to the current $40 000 loss

Product D Incurred a Net Loss of $40 000 During