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Question - ABC Co. is considering dropping product A and provided the following information.
Sales $740,000
Variable expenses $341,000
Fixed manufacturing expenses $257,000
Fixed administrative expenses $205,000
If product A is discontinued, $199,500 of the fixed manufacturing expenses and $114,500 of the fixed administrative expenses can be avoided.
Required -
a. Calculate the net operating profit/loss earned/incurred by product A.
b. Calculate the profit/loss of dropping product A. Indicate whether product A should be dropped.
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