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Author Question: Biden Company sells two items, product A and product B. The company is considering dropping product ... (Read 62 times)

audragclark

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Biden Company sells two items, product A and product B.  The company is considering dropping product B.  It is expected that sales of product A will increase by 40% as a result.  Dropping product B will allow the company to cancel its monthly equipment rental costing $200 per month.  The other existing equipment will be used for additional production of product A.  One employee earning $500 per month can be terminated if product B production is dropped.  Biden's other fixed costs are allocated and will continue regardless of the decision made.  A condensed, budgeted monthly income statement with both products follows:

Product AProduct BTotal
Sales$10,000$ 8,000$18,000
Direct materials2,5002,0004,500
Direct labor2,000 1,2003,200
Equipment rental3002,6002,900
Other allocated overhead   1,000   2,100  3,100
Operating income$4,200$   100 $ 4,300

Required:
Prepare an incremental analysis to determine the financial effect of dropping product B.


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Marked as best answer by audragclark on Mar 6, 2021

s.meritte

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