Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering

image text in transcribedimage text in transcribed

Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering dropping Product A because the income statement for this product is reporting a net operating loss as shown below. Sales Variable expenses: Variable manufacturing expenses Sales commissions Shipping Total variable expenses Contribution margin $ see,e00 $ 240,000 75,000 25,000 340,000 160,000 Fixed expenses: Salary of product-line manager $ 65,000 Advertising for this product 35,000 General factory overhead 25,000 Depreciation on equipment 20,000 Insurance on this product's inventories. 8,000 Purchasing department 15,000 Total fixed expenses Net operating loss 168,000 $ (8,000) If Product A is dropped, the company would transfer its product-line manager to another department and discontinue a search for a new manager that the company anticipated paying a salary of $48.500. The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its products using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

South-Western Federal Taxation 2018 Comprehensive

Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young

41st Edition

9781337386005

Students also viewed these Accounting questions

Question

=+f) Give the degrees of freedom for the test.

Answered: 1 week ago