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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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