20 the management of furrow corporation is

20. The management of Furrow Corporation is considering dropping product L07E. Data from
the company's budget for the upcoming year appear below:
Sales $ 830,000
Variable expenses $ 365,000
Fixed manufacturing expenses $ 291,000
Fixed selling and administrative expenses $ 166,000
In the company's accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $186,000 of the fixed manufacturing expenses
and $106,000 of the fixed selling and administrative expenses are avoidable if product L07E is
discontinued. The financial advantage (disadvantage) for the company of eliminating this
product for the upcoming year would be:
A) $8,000
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B) ($173,000)
C) ($8,000)
D) $173,000
Answer: B
Explanation:
Product L07E
Sales $ 830,000
Variable expenses 365,000
Contribution margin 465,000
Traceable fixed expenses:
Fixed manufacturing expenses 186,000
Fixed selling and administrative expenses 106,000 292,000
Segment margin $ 173,000
The segment margin of $173,000 would be lost if product L07E were dropped.
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