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Question 3 Maxwell Company manufactures and sells three models of electronic vacuum. Jane, president of the company, is considering dropping model MAX77 from its product line because the company has experienced losses for this product during the past three quarters. The following product-level operating data have been compiled for the most recent quarter: In addition, the following information is also available: - Factor rent and depreciation will not be affected by a decision to drop model MAX77. - Quarterly utility bills will be reduced from RM40,000 to RM31,000 if MAX77 is dropped. - Supervision costs for MAX77 can be eliminated if dropped. - The maintenance department will be able to reduce quarterly cosis by RM7,000 if MAX77 is dropped. - Elimination of MAX77 will make it possible to eliminate two administrative staff positions with combined salaries of RM30,000 per quarter. a. Should Maxwell Company eliminate MAX77? Please show the cost allocation and relevant costing statement in your analysis and justify your opinion. (20 marks) b. Maxwell's sales manager believes that it is important to continue to produce MAX77 to maintain a full product line. He expects the elimination of MAX77 will reduce sales of the remaining two products by 5% each. Will this information change your answer to part (a)? Explain. (20 marks)

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