Multiple Choice ($30,000) $10,000 ($22,000) $18,000 The Draper Corporation is co
ID: 2391061 • Letter: M
Question
Multiple Choice
($30,000)
$10,000
($22,000)
$18,000
The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: Sales of 15,000 units Variable expenses Contribution margin Fixed expenses $150,000 120,000 30,000 40,000 $ (10,000) Net operating loss If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable. The annual financial advantage (disadvantage) for the company from discontinuing the production and sale of Doombugs would be:Explanation / Answer
Due to discontinuing the production and sales, the company would loose the contribution on goods. However, it would benefit be reduction in fixed cost.
Net effect would be: Loss of Contribution - Decrease in Fixed cost
= 30000 - 8000
= $ 22000
Therefore company would loose $ 22000
Ans ($22000)
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