Question

The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below: Sales $ 773,900 Variable expenses $ 402,100 Fixed manufacturing expenses $ 263,200 Fixed selling and administrative expenses $ 224,600 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $186,000 of the fixed manufacturing expenses and $161,200 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

Answer 1

Answer:

Net loss of $24,600

Explanation:

Sales              $773,900

Variable Expenses ($402,100)

Contribution Margin $371,800

Avoidable Expenses of B90D

Fixed Manufacturing Expenses        $186,000

Fixed Selling and Admin Expenses  %161,200

Total Avoidable expenses                 $347,200

If the product B90D is discontinued,the contribution margin of $371,800 will be lost by Wengel corporation and costs of $347,200 will be saved.

Therefore there will be net loss of $(371,800-347,200) $24,600 to the company if the product is discontinued.