A. The management of ABC Corporation is alarmed by their operating losses. They are considering dropping the B product line. The company accountants have prepared the following analysis to help make this decision. ABC Corporation Income Statement For the Year Ended December 31, 20XX Total A B

Sales Revenue $930,000 $575,000 $355,000

Variable Costs 507,000 267,000 240,000

Contribution Margin 423,000 308,000 115,000

Fixed Costs:

Manufacturing 375,000 225,000 150,000

Selling and Administrative 62,000 45,000 17,000

Total Fixed Costs 437,000 270,000 167,000

Operating Income (Loss) $(14,000) $38,000 $(52,000) If the company stops selling the product in line B, the company will be able to avoid 80% of the fixed manufacturing costs and 100% of the fixed selling and administrative costs. Required: 1. Prepare a differential analysis to show whether the corporation should drop the B product line. 2. Should the B product line be dropped? Explain and discuss your answer.

B MAYAR Corporation produces XY product. The selling price for XY product is $250. MAYAR produces and sells 5,600 of XY per year. Cost data are as follows:

Variable manufacturing $115 per unit

Variable selling and administrative $16 per unit

Fixed manufacturing $290,000 per year

Fixed selling and administrative $150,000 per year

A potential deal has come up for a one-time sale of 32 units at a special price of $120 per unit. The marketing manager states that the sale will not negatively impact the company's regular sales activities and will require the normal variable manufacturing costs and selling and administrative costs. The production manager states that there is plenty of excess capacity and the deal will not impact fixed costs. The controller points out, however, that because the expected increase in revenues are equal to the expected increase in costs to fill the order, the deal will not have any impact on the bottom line. Required: Prepare differential analysis to decide whether the company should accept the special order or not. Discuss you answer.