Laurel Inc Management Is Considering Dropping Product Line C

Laurel Inc.has three product lines: A,B,and C.
$\begin{array}{lr}&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\\ \text { Sales } &\$20000&\$35000&\$22000&\$77000\\ \text { Variable costs } &\underline{8000}&\underline{10000}&\underline{14000}&\underline{32000}\\ \text {Contribution margin } &12000&25000&8000&45000\\ \text { Fixed costs} &\underline{4000}&\underline{11000}&\underline{9000}&\underline{24000}\\ \text { Net income} &\underline{\$8000}&\underline{\$14000}&\underline{\$(1000) }&\underline{\$21000}\\ \text { } &\\\end{array}$


Management is considering dropping product line C.If it is discontinued,one-half of its fixed costs can be avoided.The discontinuation of product line C would:

A) decrease net income by $3500.
B) increase net income by $1000.
C) decrease net income by $12 500.
D) increase net income by $4500.

Correct Answer:

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