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Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering dropping Product A because the income statement for this product is reporting a net operating loss as shown below. Sales $ see,e00 Variable expenses: Variable manufacturing expenses Sales commissions $ 240,000 75,000 25,000 Shipping Total variable expenses Contribution margin Fixed expenses: Salary of product-line manager Advertising for this product General factory overhead Depreciation on equipment Insurance on this product's inventories 340.000 160,000 $ 65,000 35,000 25,000 20,000 8,000 15,000 Purchasing department Total fixed expenses 168,000 $ (8,000) Net operating loss If Product A is dropped, the company would transfer its product-line manager to another department and discontinue a search for a new manager that the company anticipated paying a salary of $51,500. The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its products using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A? Multiple Choice S45.500) $25.500 S65.500) S8.000 O O O

Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering dropping Product A because the income statement for this product is reporting a net operating loss as shown below. Sales $ see,e00 Variable expenses: Variable manufacturing expenses Sales commissions $ 240,000 75,000 25,000 Shipping Total variable expenses Contribution margin Fixed expenses: Salary of product-line manager Advertising for this product General factory overhead Depreciation on equipment Insurance on this product's inventories 340.000 160,000 $ 65,000 35,000 25,000 20,000 8,000 15,000 Purchasing department Total fixed expenses 168,000 $ (8,000) Net operating loss If Product A is dropped, the company would transfer its product-line manager to another department and discontinue a search for a new manager that the company anticipated paying a salary of $51,500. The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its products using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A? Multiple Choice S45.500) $25.500 S65.500) S8.000 O O O

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 3E: Differential analysis for a discontinued product A condensed income statement by product line for...
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Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering dropping Product A because the income statement for this product is reporting a net operating loss as shown below: Sales $ 500,000 Variable expenses: Variable manufacturing expenses $ 240,000 Sales commissions 75,000 Shipping 25,000 Total variable expenses Contribution margin 340,000 160,000 Fixed expenses: $ 65,000 35,000 Salary of product-line manager Advertising for this product General factory overhead Depreciation on equipment Insurance on this product's inventories 25,000 20,000 8,000 15,000 Purchasing department Total fixed expenses 168,000 $ (8,000) Net operating loss If Product A is dropped, the company would transfer its product-line manager to another department and discontinue a search for a new manager that the company anticipated paying a salary of $51,500. The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its products using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A? Multiple Choice $(45,500) $(25,500) $(65,500) $8,000
Transcribed Image Text:Assume that a company manufactures and sells a variety of products, one of which it refers to as Product A. The company is considering dropping Product A because the income statement for this product is reporting a net operating loss as shown below: Sales $ 500,000 Variable expenses: Variable manufacturing expenses $ 240,000 Sales commissions 75,000 Shipping 25,000 Total variable expenses Contribution margin 340,000 160,000 Fixed expenses: $ 65,000 35,000 Salary of product-line manager Advertising for this product General factory overhead Depreciation on equipment Insurance on this product's inventories 25,000 20,000 8,000 15,000 Purchasing department Total fixed expenses 168,000 $ (8,000) Net operating loss If Product A is dropped, the company would transfer its product-line manager to another department and discontinue a search for a new manager that the company anticipated paying a salary of $51,500. The general factory overhead and purchasing department expenses are common costs that the company allocates to all of its products using total sales dollars as the allocation base. The equipment used to manufacture Product A does not wear out through use and it has no resale value. What is the financial advantage (disadvantage) of dropping Product A? Multiple Choice $(45,500) $(25,500) $(65,500) $8,000
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