Computing the Cost/Savings of Dropping a Product
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3. The management of Wengel Corporation is considering dropping product B90D. Data from the
company's accounting system show revenue and cost for product B90D below:
Sales $720,000
Variable expenses $374,000
Fixed manufacturing expenses $245,000
Fixed selling and administrative expenses $209,000
All fixed expenses of the company are fully allocated to products in the company's accounting
system. Further investigation has revealed that $173,000 of the fixed manufacturing expenses and
$150,000 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued.
Required:
What would be the effect on the company's overall net operating income if product B90D were
dropped? Should the product be dropped? Show your work!
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Solution Summary
Given the revenue and costs of a given product, this solution illustrates the true benefit or cost of dropping it.
Solution Preview
The effect on net operating income if Product B90D is discontinued will be this:
Lost sales revenues from Product B90D ...
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