Question

A company has three product lines, one of which reflects the following results:Sales $170,000Variable expenses $100,000Contribution Margin $70,000Fixed expenses $110,000Net loss $(40,000)Required:a. If this product line is eliminated, 60% of the fixed expenses can be eliminated. If management decides to eliminate this product line, the company's net income will increase/decrease by__________?

Answer 1

The company's net income will increase if this product line is eliminated because of the decrease in the fixed cost.

Explanation:

In Economics, fixed costs, backhanded expenses or overheads are operational expense that are not reliant on the quantity of products or administrations delivered by the business. They will in general be time-related, for example, intrigue or leases being paid every month, and are regularly alluded to as overhead expenses.

With the decrease in the fixed costs of the company by closing this product line, the total cost of the company will also decrease and then this will increase the net income of the company.