The management of Woznick Corporation has been concerned for some time with the financial performance of its product V86O and has considered discontinuing it on several occasions. Data from the company's accounting system for this product for last 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 $30,000 of the fixed manufacturing expenses and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is discontinued.
-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

The management of Woznick Corporation has been concerned for some time with the financial performance of its product V86O and has considered discontinuing it on several occasions. Data from the company's accounting system for this product for last 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 $30,000 of the fixed manufacturing expenses and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is discontinued.
-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

11ea7761_160a_7b92_81a5_07a8af9bec93_TB2580_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.

The Management of Woznick Corporation Has Been Concerned for Some