The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below:
| Sales | $ | 920,000 |
| Variable expenses | $ | 404,000 |
| Fixed manufacturing expenses | $ | 334,000 |
| Fixed selling and administrative expenses | $ | 241,000 |
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $206,000 of the fixed manufacturing expenses and $117,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued.
What would be the financial advantage (disadvantage) from dropping product D74F?
Multiple Choice
$193,000
$59,000
($59,000)
($193,000)
| Calculation of financial advantage (disadvantage) | |||||
| product keep | Product drop | Difference | |||
| Sales | 920000 | -920000 | |||
| less: variable expenses | -404000 | 404000 | |||
| Contribution margin | 516000 | -516000 | |||
| less: fixed expenses | |||||
| fixed manufacturing expenses | 334000 | 128000 | 206000 | ||
| fixed selling & administrative expenses | 241000 | 124000 | 117000 | ||
| Tota fixed expenses | 575000 | 252000 | 323000 | ||
| net operating income/loss | -59000 | -252000 | -193000 | ||
| There will be financial disadvantage of $193000 | |||||
| Option ($193000) Is CORRECT | |||||
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The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system...
The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below: Sales $ 920,000 Variable expenses $ 404,000 Fixed manufacturing expenses $ 334,000 Fixed selling and administrative expenses $ 241,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $206,000 of the fixed manufacturing expenses and $117,000 of the fixed selling and administrative expenses are...
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