The effect expected to occur on the company's overall earnings if Youngstown plans to discontinue its roofing business is a $30,000 reduction.
We were able to find this value by calculating the company's overall profit, using the formula:
To continue:
= contribution margin - fixed cost
To discontinue:
= Inevitable fixed cost / 2
So calculating, we find:
To continue:
= $65,000.00 - $70,000
= -$5,000
(loss)
To discontinue:
= $70,000/2
=$35,000.00
Therefore, to calculate the net loss, we use the following formula:
Net loss: continue - discontinue
= -$5,000.00 - 35,000
= $30,000.00
Therefore, it is correct to say that Youngstown will have a $30,000 reduction in profit by discontinuing the business.
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