Tremaine Inc.has three product lines: A,B,and C.
$\begin{array}{lr}
&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\
\text { Sales } &\$50000&\$85000&\$90000&\$225000\
\text { Variable costs } &\underline{30000}&\underline{30000}&\underline{44000}&\underline{104000}\
\text {Contribution margin } &2000&55000&46000&121000\
\text { Fixed costs} &\underline{23000}&\underline{25000}&\underline{18000}&\underline{66000}\
\text { Net income} &\underline{\$3000}&\underline{\$30000}&\underline{\$(28000)}&\underline{\$55000}\
\text { } &\
\end{array}$

Management is considering dropping product line A.If it is discontinued,$18 000 of its fixed costs can be avoided.The discontinuation of product line A would:

Question

Tremaine Inc.has three product lines: A,B,and C.
$\begin{array}{lr}
&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\
  \text { Sales } &\$50000&\$85000&\$90000&\$225000\
 \text { Variable costs } &\underline{30000}&\underline{30000}&\underline{44000}&\underline{104000}\
 \text {Contribution margin  } &2000&55000&46000&121000\
 \text {  Fixed costs} &\underline{23000}&\underline{25000}&\underline{18000}&\underline{66000}\
 \text {  Net income} &\underline{\$3000}&\underline{\$30000}&\underline{\$(28000)}&\underline{\$55000}\
 \text {  } &\
\end{array}$

Management is considering dropping product line A.If it is discontinued,$18 000 of its fixed costs can be avoided.The discontinuation of product line A would:

Quizplus · Accepted Answer

To determine the impact of discontinuing product line A on net income, we need to calculate the contribution margin for that product line. If the contribution margin of A is negative, discontinuing it would increase net income. However, if the contribution margin is positive, discontinuing it would decrease net income.

Assuming Tremaine Inc. uses contribution margin to allocate fixed costs, the total fixed costs of the company will remain the same regardless of whether product line A is discontinued or not. Therefore, we can only consider the impact of the variable costs and contribution margin of product line A.

We don't have any information about the revenue, variable costs and contribution margin of product line A, so we can't calculate them. However, we know that if product line A is discontinued, $18,000 of its fixed costs can be avoided. Since fixed costs are not a factor in contribution margin calculations, this means that discontinuing product line A would decrease Tremaine Inc.'s net income by $18,000.

Therefore, the correct answer is C) decrease net income by $2,000.

Tremaine Inc Management Is Considering Dropping Product Line A