The following additional information is available: 1. The factory rent of $1,500

Question

The following additional information is available: 1. The factory rent of $1,500 assigned to Product C is avoidable if the product were dropped. 2. The company's total depreciation would not be affected by dropping C. Eliminating Product C will rcduce the monthly utility bill from $1,500 to $800. 4. All supervisors' salaries arc avoidable. 5. If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000. 6. Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,000. Required: Prepare an analysis showing whether Product C should be eliminated.

Explanation / Answer

Savings IF Product " C" is eliminated :

Factory Rent 1500

Monthly Utility Bill 700

Supervisor salary 3000

Reduction in monthly ex 1000

Reduction in Salary 2000

Total Savings 8200

IF C is Continued than ,

Net operating Income ( 3700)

Add : dep (irrelevant cost) 1800

Total Cost (1900)

Hence C must be discontinued as it will lead to savings.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.