Question

The management of Furrow Corporation is considering dropping product L07E. Data from the company’s budget for the upcoming year appear below: Sales $ 950,000 Variable expenses $ 380,000 Fixed manufacturing expenses $ 362,000 Fixed selling and administrative expenses $ 242,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $217,000 of the fixed manufacturing expenses and $178,000 of the fixed selling and administrative expenses are avoidable if product L07E is discontinued.

The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be:

Answer 1

Answer- The financial (disadvantage) for the company of eliminating this product for the upcoming year would be = $175000.

Explanation-

FURROW CORPORATION
PARTICULARS	KEEP THE PRODUCT	DROP THE PRODUCT	DIFFERENCE
	$	$
Sales	950000	0	-950000
Less- Variable Expenses	380000	0	380000
Contribution margin	570000	0	-570000
Less- Fixed expenses
Fixed manufacturing expenses	362000	145000	217000
Fixed selling & administrative expenses	242000	64000	178000
Total fixed expenses	604000	209000	395000
Net operating income (loss)	-34000	-209000	-175000