From economics, we know that the formula for Profit is:

Profit = Income – Total Cost

Case 1: Continue producing and selling product x

income is calculated as:

Income = ($30 / unit) * (20, 000 units)

Income = $ 600, 000

Total cost is composed of both the fixed cost and variable

cost:

Total cost = Variable cost + Fixed cost

Total cost = ($21 / unit) * (20, 000 units) + $250,000

Total cost = $670, 000

Therefore, the profit of producing and selling product x

each month is:

Profit = $ 600, 000 – $670, 000

Profit 1= – $70, 000 (decifit)

Case 2: Discontinue producing and selling product x

Since there is no income but there is unavoidable fixed

cost of $50,000, therefore:

Profit 2 = – $50, 000 (deficit)

The company’s overall net operating income would be the

change in profit (deficit in this case):

Net operating income = Profit 2 – Profit 1

Net operating income = – $50, 000 – (- $70, 000)

**Net**

operating income = $20, 000

** **

**Therefore**

discontinuing product x would result in an increase in the overall net

operating income by $20,000 per month.