Davis Manufacturing current
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Davis Manufacturing currently manufactures product A among other products. The following is the current profit breakdown for product A:
Sales
Variable Manufacturing Costs
Variable Selling Costs
Fixed Manufacturing Costs
Fixed Selling Costs
Profit (Loss)
$365,000
$100,000
$75,000
$89,000
$112,000
$(11,000)
Davis is considering dropping the product A division. If Davis drops the product 85% of the fixed manufacturing costs and 94% of the fixed selling costs will be eliminated.
How much will profit increase or decrease if Davis drops product A?
O Decrease $20,070
O Increase $11,000
O Increase $5,000
O Decrease $9,070
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