Financial advantage or disadvantage of dropping the product
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Acme Brands is considering dropping one of its mediocre performing products. If dropped, Acme can immediately eliminate $20,000 of the fixed costs. $10,000 of the fixed costs can be re-assigned to another product where it will result in an increase of $12,000 in contribution margin for that product. Calculate the financial advantage or disadvantage of dropping the product given its current performance:
Sales $100,000
Variable costs 60,000
Contribution margin 40,000
Fixed costs 50,000
Net operating loss $ (10,000).
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Response provides the steps of calculating the financial advantage or disadvantage of dropping the product.
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Financial advantage will be calculated by taking all the costs and ...
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