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Problem 5 - 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		$ 500,000
Variable expenses:
Variable manufacturing expenses	$ 240,000
Sales commissions	75,000
Shipping	25,000
Total variable expenses		340,000
Contribution margin		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 products inventories	8,000
Purchasing department	15,000
Total fixed expenses		168,000
Net operating loss		$ (8,000)

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?