The management of Parachute Corporation is considering dropping product ABC123. Data from the company's accounting system...

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Accounting

The management of Parachute Corporation is considering droppingproduct ABC123. Data from the company's accounting system appearbelow:
Sales $ 260,000
Cost of goodssold 125,000
Building expenses 88,000
Selling and administrativeexpenses 75,000

All building expenses of the company are fully allocated toproducts in the company's accounting system. Further investigationhas revealed that $42,000 of the building expenses and $48,000 ofthe selling and administrative expenses will notbe incurred if product ABC123 is discontinued.

a. According to the company's accounting system, what are theoperating profits earned by product ABC123?
b. What would be the impact on the company's overall operatingprofits if product ABC123 is dropped? Should the product bedropped?

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a Sales 260000 Less COGS 125000 Gross Profit 135000 Less Building expenses 88000 Selling expenses 75000 Operating Profit 28000 This means there is See Answer

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The management of Parachute Corporation is considering droppingproduct ABC123. Data from the company's accounting system appearbelow:Sales$260,000Cost of goodssold125,000Building expenses88,000Selling and administrativeexpenses75,000All building expenses of the company are fully allocated toproducts in the company's accounting system. Further investigationhas revealed that $42,000 of the building expenses and $48,000 ofthe selling and administrative expenses will notbe incurred if product ABC123 is discontinued.a. According to the company's accounting system, what are theoperating profits earned by product ABC123?b. What would be the impact on the company's overall operatingprofits if product ABC123 is dropped? Should the product bedropped?


Sales	$	260,000
Cost of goodssold		125,000
Building expenses		88,000
Selling and administrativeexpenses		75,000