Lusk Corporation produces and sells 10,000 units of Product X each month. The selling price of Product X is $40 per unit, and variable expenses are $32 per unit. A study has been made concerning whether Product X should be discontinued. The study shows that $70,000 of the $120,000 in monthly fixed expenses charged to Product X would not be avoidable even if the product was discontinued. If Product X is discontinued, the monthly financial advantage (disadvantage) for the company of eliminating this product should be: rev: 07_07_2020_QC_CS-218335

($30000)

Explanation:

If Product X is discontinued, the monthly financial advantage (disadvantage) for the company of eliminating this product will be calculated thus:

Sales = 10000 × $40 = $40000

Variable expense = 10000 × $32 = $320000

Contribution margin lost = $400000 - $320000 = $80000

Savings in fixed expense = $120000 - $70000 = $50000

Financial disadvantage = Savings in fixed expenses - Contribution margin lost

= $50000 - $80000

= -$30000

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