Calculating financial advantage of dropping the product

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Reference no: EM1333961

Q1) Which of the following cost is NOT relevant to decision making?

a) sunk costs
b) costs that are common to all decision alternatives
c) differential costs
d) both and b
e) all of the above

Q2) Acme Brands is considering dropping one of its mediocre performing products. If dropped, Acme can immediately eliminate $20,000 of the fixed costs. $10,000 of the fixed costs can be re-assigned to another product where it will result in an increase of $12,000 in contribution margin for that product. Calculate the financial advantage or disadvantage of dropping the product given its current performance:

Sales $100,000
Variable costs 60,000
Contribution margin 40,000
Fixed costs 50,000
Net operating loss $ (10,000)

Reference no: EM1333961

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