Question

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 $ 935,000
Variable expenses $ 411,500
Fixed manufacturing expenses $ 349,000
Fixed selling and administrative expenses $ 256,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $213,500 of the fixed manufacturing expenses and $124,500 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?

Multiple Choice

  • $185,500

  • ($81,500)

  • $81,500

  • ($185,500)

Homework Answers

Answer #2

Correct answer-------------($185,500)

Working

Statement showing Financial Advantage or (Disadvantage) of Discontinuing a product line
Sales $ 935,000
Variable expenses
         Variable Manufacturing Expenses $ 411,500
$ 411,500
Contribution $ 523,500
Avoidable Fixed Expenses
Manufacturing expense $ 213,500
Selling and administrative expense $ 124,500
Total Avoidable Fixed Cost $ 338,000
Net Benefit of continuing or Net disadvantage of discontinuing $ 185,500
answered by: anonymous
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