Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:
|
|
|
Product
|
|
Total |
A |
B |
C |
| Sales |
$ |
116,000 |
$ |
52,000 |
$ |
28,000 |
$ |
36,000 |
| Variable expenses |
|
62,400 |
|
30,800 |
|
10,800 |
|
20,800 |
|
|
|
|
|
|
|
|
|
| Contribution margin |
|
53,600 |
|
21,200 |
|
17,200 |
|
15,200 |
|
|
|
|
|
|
|
|
|
| Fixed expenses: |
|
|
|
|
|
|
|
|
| Rent |
|
7,400 |
|
3,300 |
|
1,800 |
|
2,300 |
| Depreciation |
|
8,400 |
|
3,800 |
|
2,000 |
|
2,600 |
| Utilities |
|
5,680 |
|
2,800 |
|
580 |
|
2,300 |
| Supervisors' salaries |
|
6,680 |
|
2,300 |
|
580 |
|
3,800 |
| Maintenance |
|
3,960 |
|
2,300 |
|
680 |
|
980 |
| Administrative expenses |
|
12,400 |
|
3,800 |
|
2,800 |
|
5,800 |
|
|
|
|
|
|
|
|
|
| Total fixed expenses |
|
44,520 |
|
18,300 |
|
8,440 |
|
17,780 |
|
|
|
|
|
|
|
|
|
| Net operating income |
$ |
9,080 |
$ |
2,900 |
$ |
8,760 |
$ |
(2,580) |
|
|
|
|
|
|
|
|
|
|
The following additional information is available:
The factory rent of $1,580 assigned to Product C is avoidable if the product were dropped.
The company's total depreciation would not be affected by dropping C.
Eliminating Product C will reduce the monthly utility bill from $2,300 to $880.
All supervisors' salaries are avoidable.
If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,960 to $2,800.
Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,800.
Required:
1. Calculate the advantage or disadvantage in dropping Product C. (Input the amount as a positive value. Omit the "tiny_mce_markerquot; sign in your response.)
(Click to select) Disadvantage Advantage in dropping Product C $
2. Should the product be dropped?
Yes
No