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24 April, 07:12

One of Simplex Company's products has a contribution margin of $44,000 and fixed costs totaling $54,000. If the product is dropped, $37,000 of the fixed costs will continue unchanged. As a result of dropping the product, the company's net operating income should:

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  1. 24 April, 08:43
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    Decrease by $27000

    Explanation:

    Given that

    Contribution margin = 44000

    Initial fixed cost = 54000

    Final fixed cost = 37000

    Recall that

    Net operating income = Contrubution Margin - Net fixed cost.

    NOI = 44000 - (54000 - 37000)

    NOI = 44000 - 17000

    NOI = $27000

    Thus, Net operating income decreased by 27000.
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