The management of Zorrilla Corporation is considering dropping product R10C. Dat

Question

The management of Zorrilla Corporation is considering dropping product R10C. Data relating to Product R10C from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the fixed manufacturing expenses and $48,000 of the fixed selling and administrative expenses are avoidable if product R10C is discontinued.

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The management of Zorrilla Corporation is considering dropping product R10C. Data relating to Product R10C from the company's accounting system appear below:

Explanation / Answer

Sales $260,000

- Variable Expenses $125,000

Equal: Contribution Margin : $135,000

Less: Avoidable expenses : ($42,000+$48,000)

Equal: Increase in Net Income of $45,000 if product R10C is dropped.

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