The management of Marvel Corporation has been concerned for some time with the financial performance of its product EX123 and has considered discontinuing it on several occasions. Data from the company's accounting system appear below: Sales$650,000 Cost of goods sold$293,000 Building expenses$221,000 Selling and administrative expenses$150,000 In the company's accounting system all building expenses of the company are fully allocated to products. Further investigation has revealed that $95,000 of the building expenses and $85,000 of the selling and administrative expenses will not be incurred if product EX123 is discontinued.a. According to the company's accounting system, what are the operating profits (losses) earned by product EX123?b. What would be the effect on the company's
overall operating profits if product EX123 is dropped?
What will be an ideal response?
a.
Operating profits (losses) earned by product EX123:
| Sales | $ | 650,000 | |
| Cost of goods sold | 293,000 | ||
| Building expenses | 221,000 | ||
| Selling and administrative expenses | 150,000 | ||
| Operating profits (losses) | $ | (14,000 | ) |
Impact on company's overall operating profits if product EX123 is dropped:
| Sales | $ | (650,000 | ) |
| Cost of goods sold | 293,000 | ||
| Building expenses | 95,000 | ||
| Selling and administrative expenses | 85,000 | ||
| Increase (decrease) in operating profits | $ | (177,000 | ) |
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What will be an ideal response?