Please provide explanation. Thank you.
Homework Answers
Correct answer--------Lower operating income by $15,000
.
Explanation.
All the sales and variable expense will be eliminated if product is closed. In case of fixed cost Salaries and Utilities cost will be eliminated but depreciation cost will still be made. If product is discontinued depreciation cost remains in the cost structure and net loss will be $20,000. This Increases the loss by $15000.
| Net loss before closing product | $ (5,000.00) |
| Net loss after closing product | $ (20,000.00) |
| Increase in loss | $ (15,000.00) |
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Please provide explanation. Thank you.
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