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larisa [96]
3 years ago
9

The management of Woznick Corporation has been concerned for some time with the financial performance of its product V86O and ha

s considered discontinuing it on several occasions. Data from the company's accounting systemfor this product for last year appear below:
Sales $ 150,000
Variable expenses $ 72,000
Fixed manufacturing expenses $ 50,000
Fixed selling and administrative expenses $ 33,000
In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $30,000 of the fixed manufacturing expenses and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is discontinued.
What would be the financial advantage (disadvantage) from dropping product V86O?
a. ($35,000)
b. ($5,000)
c. $35,000
d. $5,000
Business
1 answer:
kumpel [21]3 years ago
6 0

Answer:

a. ($35,000)

Explanation:

The computation of the financial advantage or disadvantage of dropping product V860 is shown below:

= Sales - Variable cost - Avoidable fixed manufacturing - Avoidable fixed selling

= $150,000 - $72,000 - $30,000 - $13,000

= $35,000

This $35,000 would be a financial disadvantage and the fixed cost should not be considered as it is not held for decision making purpose

Hence, the correct option is a

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