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18.) Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data: Product Total A B C Sales $ 112,000

18.)

Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:

Product

Total A B C
Sales $ 112,000 $ 50,000 $ 26,000 $ 36,000
Variable expenses 61,800 30,600 10,600 20,600
Contribution margin 50,200 19,400 15,400 15,400
Fixed expenses:
Rent 6,800 3,100 1,600 2,100
Depreciation 7,800 3,600 1,800 2,400
Utilities 5,260 2,600 560 2,100
Supervisors' salaries 6,260 2,100 560 3,600
Maintenance 3,720 2,100 660 960
Administrative expenses 11,800 3,600 2,600 5,600
Total fixed expenses 41,640 17,100 7,780 16,760
Net operating income $ 8,560 $ 2,300 $ 7,620 $ (1,360)

The following additional information is available:

The factory rent of $1,560 assigned to Product C is avoidable if the product were dropped.

The company's total depreciation would not be affected by dropping C.

Eliminating Product C will reduce the monthly utility bill from $2,100 to $860.

All supervisors' salaries are avoidable.

If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,720 to $2,600.

Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,600.

Required:

1. Calculate the advantage or disadvantage in dropping Product C. (Input the amount as a positive value. Omit the "$" sign in your response.)

(Click to select)DisadvantageAdvantage in dropping Product C $

2. Should the product be dropped?
No
Yes

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