Question
XYZ manufactures and sells a number of products, including Product G. Results for last year for the manufacture and sale of Product G are as
XYZ manufactures and sells a number of products, including Product G. Results for last year for the manufacture and sale of Product G are as follows:
| Sales |
| $50,000 |
| Less expenses: |
|
|
| Variable costs | $40,000 |
|
| Fixed costs | 36,000 | 76,000 |
| Net operating loss |
| $(26,000) |
XYZ is trying to decide whether or not to discontinue Product G. Two thirds of fixed costs are avoidable if the product is dropped. Assume that dropping Product G will have no effect on other products. What is the financial advantage (disadvantage) of dropping Product G?
| A. | $26,000 financial advantage | |
| B. | $2,000 financial advantage | |
| C. | $40,000 financial advantage | |
| D. | $14,000 financial advantage |
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