Question

Product U23N has been considered a drag on profits at Jinkerson 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 U23N is discontinued. The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be:
a. $15,000
b. $143,000
c. $(143,000)
d. $(15,000)

Answer 1

Answer:

c. $(143,000)

Explanation:

The Jinkerson Corporation is considering to discontinue the product U23N. The advantage or disadvantage Jinkerson Corporation will get after the discontinuation of product U23N will be ;

Saving in Fixed manufacturing expense = $144,000

The new fixed manufacturing expense = $234,000 - $144,000 = $90,000

The new fixed selling and administrative expense = $161,000 - $93,000 = 68,000.

The company overall net income will decrease by $143,000.