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Net operating Income

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Kahn Company produces and sells 8,000 units of Product X each year. Each unit of Product X sells for 10 and has a contribution margin of 6. It is estimated that if Product X is discontinued, 50,000 of the 60,000 in fixed costs charged to Product X could be eliminated. These data indicate that if Product X is discontinued, overall company net operating income should:

decrease by 38,000 per year
increase by 38,000 per year
decrease by 2,000 per year
increase by 2,000 per year

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This provides the steps to calculate the Net operating Income.

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