Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product line income data:
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| Total | A | B | C | |||||
| Sales | $ | 117,000 | $ | 51,000 | $ | 29,000 | $ | 37,000 |
| Variable expenses | 62,700 | 30,900 | 10,900 | 20,900 | ||||
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| Contribution margin | 54,300 | 20,100 | 18,100 | 16,100 | ||||
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| Fixed expenses: | ||||||||
| Rent | 7,700 | 3,400 | 1,900 | 2,400 | ||||
| Depreciation | 8,700 | 3,900 | 2,100 | 2,700 | ||||
| Utilities | 5,890 | 2,900 | 590 | 2,400 | ||||
| Supervisors’ salaries | 6,890 | 2,400 | 590 | 3,900 | ||||
| Maintenance | 4,080 | 2,400 | 690 | 990 | ||||
| Administrative expenses | 12,700 | 3,900 | 2,900 | 5,900 | ||||
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| Total fixed expenses | 45,960 | 18,900 | 8,770 | 18,290 | ||||
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| Net operating income | $ | 8,340 | $ | 1,200 | $ | 9,330 | $ | (2,190) |
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The following additional information is available: |
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The factory rent of $1,590 assigned to Product C is avoidable if the product were dropped. |
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The company’s total depreciation would not be affected by dropping C. |
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Eliminating Product C will reduce the monthly utility bill from $2,400 to $890. |
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All supervisors’ salaries are avoidable. |
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If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $4,080 to $2,900. |
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Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,900. |
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Required: |
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| 1. | Calculate the advantage or disadvantage in dropping Product C. (Input the amount as a positive value. Omit the “$” sign in your response.) |
| (Click to select) Disadvantage Advantage in dropping Product C | $ |
| 2. | Should the product be dropped? | ||||
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