Question

Product A4B has been considered a drag on profits at XYZ Corporation for some time and management is considering discontinuing the product altogether. Data from the company's budget for the upcoming year appear below: Sales $730,000 Variable expenses $350,000 Fixed manufacturing expenses $234,000 Fixed selling and administrative expenses $161,000 In the company's accounting system, all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $144,000 of the fixed manufacturing expenses and $93,000 of the fixed selling and administrative expenses are avoidable if product A4B is discontinued. The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be:

Answer 1

the financial advantage (disadvantage) for the company of eliminating this product is -$143,000

Step-by-step explanation:

The computation is shown below:

Loss in contribution margin -$380,000 ($350,000 - $730,000)

Avoidable fixed costs $237,000 ($144,000 + $93000)

Financial advantage (disadvantage) -$143,000

Hence, the financial advantage (disadvantage) for the company of eliminating this product is -$143,000