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    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.

    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!

    © BrainMass Inc. brainmass.com June 4, 2020, 12:47 am ad1c9bdddf

    Solution Preview

    The effect on net operating income if Product B90D is discontinued will be this:

    Lost sales revenues from Product B90D ...

    Solution Summary

    Given the revenue and costs of a given product, this solution illustrates the true benefit or cost of dropping it.