Question

Looney, Inc company produces several electronic devices in their Georgia factory. Looney, Inc has the following costs related to manufacturing and selling 100,000 B37 devices. Direct materials $200,000 Direct labor $450,000 Variable manufacturing overhead $70,000 Depreciation on equipment only used for the B37 devices $32,000 Depreciation on factory (allocated to B37 device production) $100,000 Salary of B37 device production manager $80,000 Variable selling costs $25,000 Sales manager's salary (allocated to B37 device production) $30,000 Total $987,000 The sales price of the B37 device was recently reduced to $9.00 each due to new competition. Management is considering discontinuation of the B37 device. It will continue to produce other products in the same factory. If the B37 devices are discontinued, the B37 production manager will be fired and the equipment used to make the B37 devices will be put in storage. By how much will Looney's cash flow change if they discontinue the B37 and do not have the 100,000 units of B37 sales next year? a. $108,000 increase b. $75,000 decrease c. $130,000 decrease d. $100,000 decrease e. $87,000 increase

Answer 1