Question
The management of Ismail Manufacturing Corporation is considering dropping product M12C. Data from the company's accounting system appear below: Sales $550,000 Variable expenses $242,000 Fixed
The management of Ismail Manufacturing Corporation is considering dropping product M12C. Data from the company's accounting system appear below:
Sales | $550,000 |
Variable expenses | $242,000 |
Fixed manufacturing expenses | $250,000 |
Fixed selling and administrative expenses | $150,000 |
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $170,000 of the fixed manufacturing expenses and $90,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.
Determine the financial advantage (disadvantage) for the company of dropping product M12C. Should the product be dropped? Show your work!
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