Question

1. The management of Wessel Corporation is considering dropping product B90D. Data from the company's accounting system appear below:
   

Sales	$720,000
Variable expenses	$374,000
Fixed manufacturing expenses	$245,000
Fixed selling and administrative expenses	$209,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $173,000 of the fixed manufacturing expenses and $150,000 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued.

Required:

How much is the financial advantage (disadvantage) of dropping B90D?

Answer 1

Financial disadvantage of dropping B90D is $ 23,000

	B90D Continued	B90D Discontinued	Net Advantage
Sales	$                                720,000	$                                -
Less -
Variable expenses	$                              (374,000)	$                                -
Fixed manufacturing expenses	$                              (245,000)	$                    (72,000)
Fixed selling and administrative expenses	$                              (209,000)	$                    (59,000)
Total	$                              (108,000)	$                  (131,000)	$            (23,000)