Laurel Inc.has three product lines: A,B,and C.
$\begin{array}{lr}
&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\
\text { Sales } &\$20000&\$35000&\$22000&\$77000\
\text { Variable costs } &\underline{8000}&\underline{10000}&\underline{14000}&\underline{32000}\
\text {Contribution margin } &12000&25000&8000&45000\
\text { Fixed costs} &\underline{4000}&\underline{11000}&\underline{9000}&\underline{24000}\
\text { Net income} &\underline{\$8000}&\underline{\$14000}&\underline{\$(1000)}&\underline{\$21000}\
\text { } &\
\end{array}$

Management is considering dropping product line C.If it is discontinued,one-half of its fixed costs can be avoided.The discontinuation of product line C would:

Question

Laurel Inc.has three product lines: A,B,and C.
$\begin{array}{lr}
&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\
  \text { Sales } &\$20000&\$35000&\$22000&\$77000\
 \text { Variable costs } &\underline{8000}&\underline{10000}&\underline{14000}&\underline{32000}\
 \text {Contribution margin  } &12000&25000&8000&45000\
 \text {  Fixed costs} &\underline{4000}&\underline{11000}&\underline{9000}&\underline{24000}\
 \text {  Net income} &\underline{\$8000}&\underline{\$14000}&\underline{\$(1000)}&\underline{\$21000}\
 \text {  } &\
\end{array}$

Management is considering dropping product line C.If it is discontinued,one-half of its fixed costs can be avoided.The discontinuation of product line C would:

Quizplus · Accepted Answer

If product line C is discontinued, fixed costs would decrease by $4500 (one-half of $9000). This would increase net income by $4500, from $21,000 to $25,500.

Laurel Inc Management Is Considering Dropping Product Line C