Question

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	$	923,000
Variable expenses	$	405,500
Fixed manufacturing expenses	$	337,000
Fixed selling and administrative expenses	$	244,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $207,500 of the fixed manufacturing expenses and $118,500 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?

Garrison 16e Rechecks 2017-11-13, 2017-12-15

Multiple Choice

• $191,500

• $63,500

• ($63,500)

• ($191,500)

Answer 1

Calculation of advantage or disadvantage of dropping product D74F
Particulars	If prodcut continued	If product dropped
Sales	923000	0
Less:Variable cost	405500	0
Contribution	517500	0
Less:Fixed cost
Manufaturing	337000	(337000-207500)=129500
Selling & admin	244000	(244000-118500)=125500
Loss	-63500	-255000
A comparison of loss figures indicate that ,loss is increased if the product is discontinued.In fact by dropping D74F increase the loss ( 191500).                     Hence OPTION -4 is correct