# Data covering QMB Corporation's two product lines are as follows: Product "W" Product "Z"...

## Question:

Data covering QMB Corporation's two product lines are as follows:

 Product "W" Product "Z" Sales P36,000 P25,200 Income before income tax 15,936 (8,388) Sales price per unit 30 14 Variable cost per unit 8.50 15

The total units sold of "W" was 2,400 and that "Z" was 3,600 units. If product "Z" is discontinued and this results in a 400 units decrease in sales of product "W", the total effect on income will be?

## Financial Effect of Discontinuing a Product:

In order to calculate the financial impact that discontinuing a product, the irrelevant costs should be identified and ignored in the calculations. Irrelevant costs are those costs that will not change if the product is discontinued.

The effect on operating income will be:

 P6,800 Loss in sales revenue P(25,200) (1,800 units) Saving in variable expenses Product Z 27,000 (P15 x 1,800) Loss in contribution margin Product W (8,600 )(P30 - P8.50 = P21.50 x 400) Decrease in oeprating income