The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system appear below:
$$\begin{array} { l r }
\text { Sales } & \$ 260,000 \
\text { Cost of goods sold } & 125,000 \
\text { Building expenses } & 88,000 \
\text { Selling and administrative expenses } & 75,000
\end{array}$$
All building expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the building expenses and $48,000 of the selling and administrative expenses will not be incurred if product ABC123 is discontinued.
a. According to the company's accounting system, what are the operating profits earned by product ABC123?
b. What would be the impact on the company's overall operating profits if product ABC123 is dropped? Should the product be dropped?

Question

The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system appear below:
 $$\begin{array} { l r } 
\text { Sales } & \$ 260,000 \
\text { Cost of goods sold } & 125,000 \
\text { Building expenses } & 88,000 \
\text { Selling and administrative expenses } & 75,000
\end{array}$$ 
All building expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the building expenses and $48,000 of the selling and administrative expenses will not be incurred if product ABC123 is discontinued.
a. According to the company's accounting system, what are the operating profits earned by product ABC123?
b. What would be the impact on the company's overall operating profits if product ABC123 is dropped? Should the product be dropped?

Quizplus · Accepted Answer

The Answer of The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system appear below:
 $$\begin{array} { l r } 
\text { Sales } & \$ 260,000 \
\text { Cost of goods sold } & 125,000 \
\text { Building expenses } & 88,000 \
\text { Selling and administrative expenses } & 75,000
\end{array}$$ 
All building expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $42,000 of the building expenses and $48,000 of the selling and administrative expenses will not be incurred if product ABC123 is discontinued.
a. According to the company's accounting system, what are the operating profits earned by product ABC123?
b. What would be the impact on the company's overall operating profits if product ABC123 is dropped? Should the product be dropped?

The Management of Parachute Corporation Is Considering Dropping Product ABC123