Question

The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below:

Sales $736,400
Variable expenses $382,600
Fixed manufacturing expenses $250,600
Fixed selling and administrative expenses $213,800

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $177,000 of the fixed manufacturing expenses and $153,400 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued.

Required:
What would be the financial advantage (disadvantage) of dropping B90D? Should the product be dropped?

Answer 1

Financial Disadvantage of Dropping B90D $23,400

Step-by-step explanation:

The computation of the financial advantage or disadvantage of dropping B90D is as follows;

Sales $736,400

Less: Variable Exp enses -$382,600

Less: Fixed Manufacturing Exp (Variable only) $177,000

Less: Fixed Selling & Adm Exp (Variable only) $153,400

Financial Disadvantage of Dropping B90D $23,400