Desription Product A Product BSale $ 250,000.00 $ 532,000.00

Less: V/C

Variable cost $ (160,000.00) $ (230,000.00)

Contribution Margin $ 90,000.00 $ 302,000.00 Fixed Cost Avoidable cost $ (90,000.00) $ (202,000.00)

Unavoildable cost $ (33,000.00) $ (66,000.00)

Total Fixed Cost $ (123,000.00) $ (268,000.00)

Total $ (33,000.00) $ 34,000.00

$ (66,000.00) $ 66,000.00

Ratio : $ 0.28 $ 0.24

A $ (58,928.57) $ 0.28

B $ (58,928.57) $ 0.24

D $ (58,928.57) $ 0.48

Desription Product A Product B Sale $ 532,000.00

Less: V/C

Variable cost $ (230,000.00)

Contribution Margin $ 302,000.00 Fixed Cost Avoidable cost $ (202,000.00)

Unavoildable cost $ (66,000.00)

Ratio for Unavidalbe cost of C $ (33,000.00)

$ (301,000.00)

$ 1,000.00

Use the incremental approach to determine if Product C should be dropped.SolutionBy dropping Product C, the company will loose the sale revenue from the product line. The compaywill also obtain gains in the form of avoided costs. But it can avoid only the variable costs and direct fixed costs of product C and not the allocated fixed costs. Hence:If Product C is DroppedGains:Variable Costs Avoided $ (160,000.00)Direct Fixed Costs A $ (90,000.00)Toal avoidable cost $ (250,000.00)Less: Sales Revenue $ 250,000.00 Decrease in Net Inc $ -

Profit & Loss $ 782,000.00

$ -

$ (390,000.00)

$ 392,000.00

$ (292,000.00) $ (265,319.69) $ (124,680.31) $ (99,000.00) $ (67,350.38) $ (198,649.62) $ (391,000.00) $ (31,649.62) $ (93,350.38)

$ 1,000.00

$ (33,000.00)

Profit & Loss $ 532,000.00

$ (230,000.00)

$ 302,000.00 $ 2,000.00

$ (202,000.00)

$ (66,000.00)

$ (33,000.00)

$ (301,000.00)

$ 1,000.00

Use the incremental approach to determine if Product C should be dropped.

By dropping Product C, the company will loose the sale revenue from the product line. The compaywill also obtain gains in the form of avoided costs. But it can avoid only the variable costs and direct fixed costs of product