The management of Wengel Corporation is considering dropping product B90D. Data from the company's accounting system appear below:?Sales$720,000?Variable expenses$374,000?Fixed manufacturing expenses$245,000?Fixed selling and administrative expenses$209,000All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $173,000 of the fixed manufacturing expenses and $150,000 of the fixed selling and administrative expenses are avoidable if product B90D is discontinued.Required:What would be the financial advantage (disadvantage) of dropping B90D? Should the product be dropped? Show your work!
What will be an ideal response?
| ? | ? | Keep the Product | Drop the Product | Difference |
| ? | Sales | $720,000 | $0 | ($720,000) |
| ? | Variable expenses | 374,000 | 0 | 374,000 |
| ? | Contribution margin | 346,000 | 0 | (346,000) |
| ? | Fixed expenses: | ? | ? | ? |
| ? | Fixed manufacturing expenses | 245,000 | 72,000 | 173,000 |
| ? | Fixed selling and administrative expenses | 209,000 | 59,000 | 150,000 |
| ? | Total fixed expenses | 454,000 | 131,000 | 323,000 |
| ? | Net operating income (loss) | ($108,000) | ($131,000) | ($23,000) |
Net operating income would decline by $23,000 if product B90D were dropped. Therefore, the product should not be dropped.
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