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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.

    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!

    © BrainMass Inc. brainmass.com June 4, 2020, 12:47 am ad1c9bdddf
    https://brainmass.com/business/accounting/computing-the-cost-savings-of-dropping-a-product-359566

    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.

    $2.19

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