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Sergio [31]
3 years ago
11

The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its produc

ts using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A
Business
1 answer:
horrorfan [7]3 years ago
3 0

Answer: Disadvantage of $52,000

Explanation:

Financial advantage(disadvantage) of dropping Product A will depend on if the savings associated with the drop will be more than the contribution margin that A brings in.

If the product is dropped, the fixed costs that would be dropped are: the salary of the manager, the advertising for the product and the insurance on the inventories of the product.

The other fixed costs are either general or irrelevant (product does not wear so depreciation is irrelevant)

Advantage (disadvantage) = Savings - Contribution margin

= (65,000 + 35,000 + 8,000) - 160,000

= (52,000)

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Answer:

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3 years ago
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