Question

Lisah, Inc., manufactures golf clubs in three models. For the year, the Big Bart line has a net loss of $10,000 from sales $200,000, variable costs $180,000, and fixed costs $30,000. If the Big Bart line is eliminated, $20,000 of fixed costs will remain. Prepare an analysis showing whether the Big Bart line should be eliminated. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Answer 1

Answer and Explanation:

Particulars    Continue         Discontinue       Differential Effect  on income

Sales          $200,000               $0                   -$200,000  

variable cost $180,000             $0                    $180,000  

Contribution margin $20,000   $0                   -$20,000  

Fixed cost        $30,000          $20,000           $10,000  

Net income      $-10,000         -$20,000         -$10,000

So the net financial disadvantage regarding elimination is $100,000