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The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: Sales of 15,000
The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: Sales of 15,000 units Variable expenses Contribution margin Fixed expenses Net operating loss $150,000 120,000 30,000 40,000 $(10,000) If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable. Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a $16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the financial advantage (disadvantage) from discontinuing the production and sale of Doombugs would be: Multiple Choice ($6,000) $14,000 ($2,000) $28,000
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