Reference: 09-09
Bingham Company Manufactures and Sells Product J Bingham Company Anticipates No Change in the Operating Results for for Last

Reference: 09-09
Bingham Company manufactures and sells Product J. Results for last year's manufacture and sale of Product J are as follows: $$\begin{array} { | l | l | l | } \hline \text { Sales: } 10,000 \text { units at } \$ 160 \text { each } & & \$ 1,600,000 \\\hline \text { Less costs: } & & \\\hline \text { Variable production costs } & 960,000 & \\\hline \text { Sales commissions: } 15 \% \text { of sales } & 240,000 & \\\hline \text { Salaries of line supervisors } & 195,000 & \\\hline \text { Traceable fixed advertising expense } & 180,000 & \\\hline \text { Fixed general factory overhead (allocated to } & & \\\hline \text { products on the basis of square feet occupied) } & 170,000 & \\\hline \text { Total costs } & & 1,745,000 \\\hline \text { Net loss } & & \$ ( 145,000 ) \\\hline\end{array}$$ Bingham Company anticipates no change in the operating results for Product J in the foreseeable future if the product is produced. Bingham is re-examining all of its products and is trying to decide whether to discontinue the manufacture and sale of Product J. The company's total fixed factory overhead cost would not be affected by this decision.
-Assume that discontinuing Product J would result in a $30,000 increase in the contribution margin of other product lines. If Bingham chooses to discontinue Product J, then the change in net income next year due to this action will be a:

A) $5,000 increase.
B) $145,000 decrease.
C) $120,000 increase.
D) $145,000 increase.

Correct Answer:

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