---### Business Decision Analysis: Case Study**Scenario:**Patel Corporation is considering discontinuing one of its product lines. This product line generates a contribution margin of $330,000 per year. Fixed expenses allocated to the product line are $420,000 per year. It is estimated that $255,000 of these fixed expenses could be eliminated if the product line is discontinued. Based on this data, what is the financial advantage or disadvantage of discontinuing the product line?**Question:***What is the financial advantage or disadvantage of discontinuing the product line?***Multiple Choice Options:**- Financial disadvantage of $75,000 per year.- Financial advantage of $165,000 per year.- Financial advantage of $75,000 per year.---### Explanation:To determine the financial impact of discontinuing the product line, we need to compare the contribution margin lost and the fixed expenses saved:1. Contribution Margin: $330,000 per year (lost if discontinued)2. Fixed Expenses: $420,000 per year - Fixed Expenses Eliminated: $255,000 per yearIf the product line is discontinued:- Total Fixed Expenses saved: $255,000- Contribution Margin lost: $330,000- Net Financial Impact = Contribution Margin lost - Fixed Expenses saved = $330,000 - $255,000 = $75,000Since the net financial impact is a loss, discontinuing the product line results in a financial disadvantage of $75,000 per year.---This scenario serves as an excellent example for understanding the financial implications of business decisions related to product line discontinuation. It highlights the importance of analyzing both contribution margins and fixed expenses to make informed decisions.---

Decision regarding the discontinuance of a product-line or a segment is taken on the basis of how…

Patel Corporation is considering discontinuing one of its product lines. This product line generates a contribution margin of $330,000 per year. Fixed expenses allocated to the product line are $420,000 per year. It is estimated that $255,000 of these fixed expenses could be eliminated if the product line is discontinued. Based on this data, what is the financial advantage or disadvantage of discontinuing the product line? Multiple Choice Financial disadvantage of $75,000 per year. Financial advantage of $165,000 per year. Financial advantage of $75,000 per year.

Patel Corporation is considering discontinuing one of its product lines. This product line generates a contribution margin of $330,000 per year. Fixed expenses allocated to the product line are $420,000 per year. It is estimated that $255,000 of these fixed expenses could be eliminated if the product line is discontinued. Based on this data, what is the financial advantage or disadvantage of discontinuing the product line? Multiple Choice Financial disadvantage of $75,000 per year. Financial advantage of $165,000 per year. Financial advantage of $75,000 per year.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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