Product U23N has been considered a drag on profits at Jinkerson Corporation for some time and management is considering discontinuing the product altogether.Data from the company's budget for the upcoming year appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products.Further investigation has revealed that $144,000 of the fixed manufacturing expenses and $93,000 of the fixed selling and administrative expenses are avoidable if product U23N is discontinued.The financial advantage (disadvantage)for the company of eliminating this product for the upcoming year would be:
A)$15,000
B)$143,000
C)($143,000)
D)($15,000)

Question

Product U23N has been considered a drag on profits at Jinkerson Corporation for some time and management is considering discontinuing the product altogether.Data from the company's budget for the upcoming year appear below:  In the company's accounting system all fixed expenses of the company are fully allocated to products.Further investigation has revealed that $144,000 of the fixed manufacturing expenses and $93,000 of the fixed selling and administrative expenses are avoidable if product U23N is discontinued.The financial advantage (disadvantage)for the company of eliminating this product for the upcoming year would be:
A)$15,000 
B)$143,000 
C)($143,000) 
D)($15,000)

Quizplus · Accepted Answer

The fixed expenses that are avoidable if product U23N is discontinued are $144,000 (fixed manufacturing expenses) + $93,000 (fixed selling and administrative expenses) = $237,000.

Therefore, the financial advantage of eliminating this product would be a reduction of $237,000 in fixed expenses for the upcoming year.

Since the question asks for the financial advantage (or disadvantage), the answer should be expressed as a positive or negative figure. In this case, since it is an advantage, the answer should be negative, which is represented by option C) ($143,000). 11ea7998_5c57_3464_911b_295d241bce26_TB2627_00_TB2627_00 The segment margin of $143,000 would be lost if product U23N were dropped.

Product U23N Has Been Considered a Drag on Profits at Jinkerson