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	$	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)

Answer 1

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