Question

The management of Furrow Corporation is considering dropping product L07E. Data from the company’s budget for the upcoming year appear below: Sales $ 920,000 Variable expenses $ 386,000 Fixed manufacturing expenses $ 368,000 Fixed selling and administrative expenses $ 248,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $229,000 of the fixed manufacturing expenses and $190,000 of the fixed selling and administrative expenses are avoidable if product L07E is discontinued. The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be

Answer 1

Answer:

The financial disadvantage is    -$ 197,000

Explanation:

Sales $ 920,000

Variable expenses $ 386,000

Fixed manufacturing expenses $ 368,000

Fixed selling and administrative expenses $ 248,000

wtih  Product L07E is eliminated

Unfavorable Fixed Manufacturing Expense = 368,000 - 229,000

= $139000

Unfavorable Fixed Selling and Administrative Expense = 248,000 - 190,000

=$58000

so the final disadvantage of eliminating product L07E = -139000-58000

-$ 197,000