Saturn Industries has three product lines. Management is concerned about the Jupiter product line, which experienced an operating loss of $(40,000) last year as result of sales of $240,000, variable expenses of $150,000, and fixed expenses of $130,000. If this product line is eliminated, 60% of the fixed expenses can be eliminated, but the remaining 40% will have to be allocated to other product lines. If management decides to eliminate this product line, the company's net income will
A)increase by $40,000.
B) decrease by $90,000.
C) decrease by $12,000.
D) increase by $12,000.

Question

Quizplus · Accepted Answer

(Sales - Variable Expenses = Contribution margin - Fixed expenses eliminated = Net Income decrease); $240,000 - $150,000 = $90,000; $90,000 - ($130,000 x .60) = $12,000 (decrease)

Saturn Industries Has Three Product Lines