Bordeaux Company has three product lines one of which reflects the following results: $\begin{array}{lr}
\text { Sales } & \$ 215,000 \
\text { Variable expenses } & 125,000 \
\text { Contribution margin } & 90,000 \
\text { Fixed expenses } & 150,000 \
\text { Net loss } & \$(60,000)
\end{array}$ If this product line is eliminated 50% of the fixed expenses can be eliminated and the other 50% will be allocated to other product lines. If management decides to eliminate this product line the company's net income will
A) increase by $60000.
B) decrease by $90000.
C) decrease by $15000.
D) increase by $15000.

Question

Quizplus · Accepted Answer

Eliminating the product line removes its contribution margin of $90,000 but also removes $75,000 of fixed expenses (50% of $150,000). The net effect is a decrease in overall net income by $15,000 ($90,000 - $75,000).

Bordeaux Company Has Three Product Lines One of Which Reflects