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

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