Question

The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below: Sales $ 794,600 Variable expenses $ 412,900 Fixed manufacturing expenses $ 270,200 Fixed selling and administrative expenses $ 230,600 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $191,000 of the fixed manufacturing expenses and $165,500 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? Should the product be dropped?

Answer 1

Answer:

$25,200

Net operating income would reduced by $25,200

Explanation:

As per the given question the solution of financial advantage (disadvantage) of dropping B90D is provided below:-

Net operating income of Dropping B90D = Sales - Variable Expenses - Fixed Manufacturing Expenses - Fixed Selling & Administrative expenses

= $794,600 - $412,900 - $191,000 - $165,500

= $25,200

So, we have calculated the financial advantage (disadvantage) of dropping B90D by using the above formula.

Net operating income would reduced by $25,200