Balser Corporation manufactures and sells a number of products, including a prod

Question

Balser Corporation manufactures and sells a number of products, including a product called JYMP. Results for last year for the manufacture and sale of JYMPs are as follows:

Balser is trying to decide whether to discontinue the manufacture and sale of JYMPs. All expenses other than fixed manufacturing overhead are avoidable if the product is dropped. None of the fixed manufacturing overhead is avoidable.

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:

Sales $ 960,000 Less expenses: Variable production costs $ 464,000 Sales commissions 144,000 Salary of product manager 100,000 Fixed product advertising 160,000 Fixed manufacturing overhead 132,000 1,000,000 Net operating loss $ (40,000 )

Explanation / Answer

Loss in contribution margin of JYMP -352000 =960000-464000-144000 Avoidable fixed costs 260000 =160000+100000 Additional contribution margin 90000 Financial (disadvantage) -2000

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