Answer:
Financial disadvantage from dropping = $(182,000)
Explanation:
<em>A product should be shut down if doing so would make the savings in fixed costs associated with the product to exceed the lost contribution. Other wise , the product should remain.</em>
In a shut down decision , the following relevant cash flows should be considered:
1. Lost contribution from the product to be shut down
2. Savings in fixed directly attributable to the product under consideration.
So, we will apply these principles as follows:
Lost contribution from the product to be shut down:
(942,000-415,000) (527,000)
Savings from fixed direct fixed cost:
(217,000+128,000) <u> 345,000</u>
Net loss contribution <u> (182,000) </u>
Financial disadvantage from dropping = $(182,000)
