The management of ABC Corporation is alamted 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 B A $930,000 $575.000 $355,000 507000267000 240 000 423,000308.000 115.000

Sales Revenue Variable Costs Contribution Margin Fixed Costs: Manufacturing Selling and Administrative Total Fixed Costs Operating Income (Loss)

375,000225,000 150,000

45.00017.000 437000270000 167 000 14 0 8 0 $(52.00o)

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.