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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
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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

User ArtBindu
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Answer: Disadvantage of $52,000

Step-by-step explanation:

Financial advantage(disadvantage) of dropping Product A will depend on if the savings associated with the drop will be more than the contribution margin that A brings in.

If the product is dropped, the fixed costs that would be dropped are: the salary of the manager, the advertising for the product and the insurance on the inventories of the product.

The other fixed costs are either general or irrelevant (product does not wear so depreciation is irrelevant)

Advantage (disadvantage) = Savings - Contribution margin

= (65,000 + 35,000 + 8,000) - 160,000

= (52,000)

The general factory overhead and purchasing department expenses are common costs that-example-1
User Nitesh Goel
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