Question

TB Problem Qu. 12-175 The management of Wengel Corporation ...

The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below:

Sales	$	820,000
Variable expenses	$	426,000
Fixed manufacturing expenses	$	278,600
Fixed selling and administrative expenses	$	237,800

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $197,000 of the fixed manufacturing expenses and $170,800 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?

Net operating income (loss) would DECLINE OR INCREASE by if product B90D were dropped. Therefore, the product SHOULD BE/ SHOULD NOT BE dropped

Answer 1

Answer:

i).

particulars	Amount ($)
sales	$ 820000
variable expenses	(426000)
contribution	394000
fixed manufacturing expense	(197000)
fixed administrative expense	(170800)
net income	26200

ii)

If the company drops the product then its total net income would decrease by $26200