Balser Corporation manufactures and sells a number of products, including a product called JYMP. Results for last year for the manufacture and sale of JYMPs are as follows: Balser is trying to decide whether to discontinue the manufacture and sale of JYMPs. All expenses other than fixed manufacturing overhead are avoidable if the product is dropped. None of the fixed manufacturing overhead is avoidable.
Assume that dropping Product JYMP would result in a $90,000 increase in the contribution margin of other products. If Balser chooses to discontinue JYMP, the annual financial advantage (disadvantage) of eliminating this product should be:
A) ($40,000)
B) $40,000
C) ($2,000)
D) $50,000

Question

Balser Corporation manufactures and sells a number of products, including a product called JYMP. Results for last year for the manufacture and sale of JYMPs are as follows:  Balser is trying to decide whether to discontinue the manufacture and sale of JYMPs. All expenses other than fixed manufacturing overhead are avoidable if the product is dropped. None of the fixed manufacturing overhead is avoidable.
Assume that dropping Product JYMP would result in a $90,000 increase in the contribution margin of other products. If Balser chooses to discontinue JYMP, the annual financial advantage (disadvantage) of eliminating this product should be:
A) ($40,000) 
B) $40,000 
C) ($2,000) 
D) $50,000

Quizplus · Accepted Answer

11eacbfc_c63f_8485_8ffe_ff218e331399_TB7552_00 The company would lose $960,000 in sales while saving only $868,000 in expenses-a net effect of a decrease of $92,000. This would be offset by the $90,000 increase in contribution margin of other products, so the net effect would be a $2,000 financial disadvantage.

Balser Corporation Manufactures and Sells a Number of Products, Including