Problem 2:

The management of Wendel Corporation is considering dropping product B90X. Data from the company's accounting system appear below:

Sales	$720,000
Variable expenses	$374,000
Fixed manufacturing expenses	$245,000
Fixed selling and administrative expenses	$209,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $173,000 of the fixed manufacturing expenses and $150,000 of the fixed selling and administrative expenses are avoidable if product B90X is discontinued.

Required:

What would be the financial advantage (disadvantage) of dropping B90X? Should the product be dropped? Show your work!

	Keep Product	Drop Product	Difference
Sales
Variable Cost
Contribution Margin
Fixed Expenses:
Fixed Manufacturing Expenses
Fixed Selling & Administrative
Total Expenses
Net Income