Tremaine Inc Management Is Considering Dropping Product Line A

question 1

Multiple Choice

Tremaine Inc.has three product lines: A,B,and C.
$\begin{array}{lr}&\underline{\text { A }} &\underline{\text { B }} &\underline{ \text { C }} &\underline{ \text { Total }}\\ \text { Sales } &\$50000&\$85000&\$90000&\$225000\\ \text { Variable costs } &\underline{30000}&\underline{30000}&\underline{44000}&\underline{104000}\\ \text {Contribution margin } &2000&55000&46000&121000\\ \text { Fixed costs} &\underline{23000}&\underline{25000}&\underline{18000}&\underline{66000}\\ \text { Net income} &\underline{\$3000}&\underline{\$30000}&\underline{\$(28000) }&\underline{\$55000}\\ \text { } &\\\end{array}$



Management is considering dropping product line A.If it is discontinued,$18 000 of its fixed costs can be avoided.The discontinuation of product line A would:

• A) decrease net income by $15 000.
• B) increase net income by $21 000.
• C) decrease net income by $2000.
• D) increase net income by $3000.

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