A product line earns a contribution of $40,000 a year and is charged $55,000 of apportioned fixed overheads, of which $12,000 would be saved if the line were discontinued. The rest of the overheads would continue. What would be the effect on company profit of discontinuing the line?

Correct answer: C) Profit would fall by $28,000

Explanation

Discontinuing the line loses its contribution of $40,000 but saves only $12,000 of avoidable fixed costs. The remaining $43,000 of overheads continue regardless. Net effect = -$40,000 + $12,000 = -$28,000, so profit falls by $28,000. The reported $15,000 loss after apportioned overheads is misleading.