Answer:
Effect on income= -$20,000
Explanation:
Giving the following information:
Analysis of Hair Care Company’s citrus hair conditioner reveals that it is losing $5,000 annually. The company sells 5,000 units of citrus hair conditioner each year at $10 per unit. Variable costs are $6 per unit.
If the total contribution margin is positive, the citrus hair conditioner elimination will not reflect a positive effect on net income, because none of the fixed costs will be eliminated.
Total contribution margin= 5,000* (10 - 6)= $20,000
Now we know that fixed costs are $25,000 (it is causing the $5,000 loss).
Effect on income= -$20,000
It is already loosing $5,000
