The Managers of Lucky Tiger Ltd If the Product Line Is Discontinued, $5,000 of the Fixed

question 102

Multiple Choice

The managers of Lucky Tiger Ltd. are considering dropping one of their product lines. The product line typically has the following revenue and costs:
$\begin{array}{lr}\text { Sales } & \$ 100,000 \\\text { Variable costs } & \underline{80,000} \\\quad \text { Contribution margin } & 20,000 \\\text { Fixed costs } &\underline{ 25,000} \\\quad \text { Operating loss } &\underline{ \underline{\$(5,000) }}\end{array}$
If the product line is discontinued, $5,000 of the fixed costs would be avoided. Also, the freed-up capacity would generate $5,000 of additional contribution margin from the expansion of other product lines. If Lucky Tiger discontinues the product line, the effect on overall profit will be:

• A) $12,000 decrease
• B) $10,000 decrease
• C) $10,000 increase
• D) $30,000 increase

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Definitions:

Lucrative Gifts

Items or services given that generate a significant amount of income or profit for the recipient.

Juan De Oñate

A Spanish conquistador, known for his role as a colonizer in the Southwest area of what is now the United States in the late 16th century.

Disgrace

The loss of reputation or respect as the result of a dishonorable action or failure to maintain moral standards.

Spain's Monopoly

Refers to the exclusive control and trade privileges Spain held over its overseas colonies, particularly in the Americas, during the 16th to 18th centuries.