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: $500,000 $240,000 75,000 25,000 340,000 160,000 Sales Variable expenses : Variable manufacturing expenses Sales commissions Shipping Total variable expenses Contribution margin Fixed expenses : Salary of product-line manager Advertising for this product General factory overhead Depreciation on equipment Insurance on this product's inventories Purchasing department Total fixed expenses Net operating loss $ 65,000 35,000 25,000 20,000 8,000 15,000 168,000 $ (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 $47,500. 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? Multiple Choice $ (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 $47,500. 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? Multiple Choice $(69,500) ${29,500) $149,500) 0 $8.000 Assume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per Unit $18 12 2 B 4 $44 10,000 Units per Year $180,000 120,000 20,000 80,000 40,000 $440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 2.300 more units of another product that earns a contribution margin per unit of $7.25. What is the financial advantage (disadvantage) of buying 10,000 units from the supplier? Multiple Choice $(32,300) $23,325)