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The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: Question 34 - Final If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable. Suppose that if the Doombug toy is dropped, the production and sale of other Draper toys would increase so as to generate a $16,000 increase in the contribution margin received from these other toys. If all other conditions are the same, the financial advantage (disadvantage) from discontinuing the production and sale of Doom Bugs would be:

Respuesta :

Answer:

the financial disadvantage is -$6,000

Explanation:

The computation of the financial advantage or disadvantage is as follows

= Lost of the contribution margin + avoidable fixed cost + increase in contribution margin

= -$30,000 + $8,000 + $16,000

= -$6,000

It should not be dropped as the saving cost is lower than the contribution loss

Hence, the financial disadvantage is -$6,000

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