Question

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

Sales	$	740,700
Variable expenses	$	384,800
Fixed manufacturing expenses	$	252,000
Fixed selling and administrative expenses	$	215,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $178,000 of the fixed manufacturing expenses and $154,300 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 B90Dwere droped. Therefor the product (should/should not) be dropped

Answer 1

Calculate net operating income (loss) if product continue :

Sales	740700
Variable expense	-384800
Fixed manufacturing expense	-252000
Fixed selling and administrative epense	-215000
Net oeprating income (loss)	-111100

Net operating income (loss) if product discontinue :

Fixed manufacturing expense (252000-178000)	-74000
Fixed selling and administrative expense (215000-154300)	-60700
Net operating income (loss)	-134700

Financial disadvantage = 111100-134700 = -23600

No, product should not be dropped.

Net operating (loss) would increase by 23600 if product B90D were dropped. Therefore the product should not be dropped