Question

The management of Furrow Corporation is considering dropping product LOTE. Data from the company's budget for the upcoming year appear below: Sales Variable expenses Fixed manufacturing expenses Fixed selling and administrative expenses $980,000 $ 402,000 $384,000 $264,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $261,000 of the fixed manufacturing expenses and $222,000 of the fixed selling and administrative expenses are avoidable if product LOTE is discontinued. The financial advantage (disadvantage) for the company of eliminating this product for the upcoming year would be: Multiple Choice O $70,000)

Answer 1

Answer- The financial (disadvantages) for the company of eliminating this product for the upcoming year would be =($95000).

Explanation-

FURROW CORPORATION
Computation of increase or decrease of net operating income if the product line is continued or discontinued
DIFFERENTIAL ANALYSIS
	ALTERNATIVE 1	ALTERNATIVE 2	Difference Net Operating Income
PARTICULARS	Keep the product	Eliminate the product	Increase or Decrease
	$	$	$
Sales	980000	0	-980000
Less- Variable expenses	402000	0	402000
Contribution margin	578000	0	-578000
Less- Fixed costs
Manufacturing expenses	384000	162000	222000
Selling & administrative expenses	264000	3000	261000
Net Income	-70000	-165000	-95000