Maintenance department will be able to reduce

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Reference no: EM13924096

Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:
			Product
	Total		A		B		C
Sales	$	112,000	$	50,000	$	26,000	$	36,000
Variable expenses		61,800		30,600		10,600		20,600

Contribution margin		50,200		19,400		15,400		15,400

Fixed expenses:
Rent		6,800		3,100		1,600		2,100
Depreciation		7,800		3,600		1,800		2,400
Utilities		5,260		2,600		560		2,100
Supervisors' salaries		6,260		2,100		560		3,600
Maintenance		3,720		2,100		660		960
Administrative expenses		11,800		3,600		2,600		5,600

Total fixed expenses		41,640		17,100		7,780		16,760

Net operating income	$	8,560	$	2,300	$	7,620	$	(1,360)

The following additional information is available:

The factory rent of $1,560 assigned to Product C is avoidable if the product were dropped.

The company's total depreciation would not be affected by dropping C.

Eliminating Product C will reduce the monthly utility bill from $2,100 to $860.

All supervisors' salaries are avoidable.

If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,720 to $2,600.

Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,600.

Required:

1. Calculate the advantage or disadvantage in dropping Product C. (Input the amount as a positive value. Omit the "$" sign in your response.)

2. Should the product be dropped?

Yes or No

Reference no: EM13924096

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