# Brantly Company manufactures two products. Both products have the same sales price, and the...

## Question:

Brantly Company manufactures two products. Both products have the same sales price, and the volume of sales is equivalent. However, due to the difference in production processes, Product A has higher variable costs and Product B has higher fixed costs Management is considering dropping Product B because that product line has an operating loss.

Brantly Company
Income Statement
Month Ended June 30, 2018
Total Product A Product B
Net Sales Revenue $160,000$80,000 $80,000 Variable Costs 132,000 66,800 65,200 Contribution Margin 28,000 14,200 13,800 Fixed Costs 35,000 3,500 31,500 Operating Income/(Loss)$(7,000) $9,700$(16,700)

1. If fixed costs cannot be avoided, should Brantly drop Product B? Why or why not? (Use a minus to enter a decrease)

 Expected Decrease in revenue _____ Expected decrease in total variable costs _____ Expected increase (decrease) in operating income _____

Brantly _____ (should/should not) drop product B because operating income will _____ (decrease by _____/increase by _____)

2. If 50% of Product B's fixed costs are avoidable. should Brantly drop Product B? Why or why not? (Use a minus to enter a decrease)

 Expected Decrease in revenue _____ Expected decrease in total variable costs _____ Expected decrease in fixed costs _____ Expected decrease in total costs _____ Expected Increase/decrease in operating income _____

Brantly _____ (should/should not) drop product B because operating income will _____ (decrease by _____/increase by _____)

## Relevant Costs in Eliminating a Product:

The relevant information to take into account when considering the dropping of a product is the loss in sales revenue less any savings in variable and avoidable fixed costs. Unavoidable costs are irrelevant to the decision.

 -$13,8... Expected Decrease in revenue -$80,000 Expected decrease in total variable costs 65,200 Expected increase (decrease) in operating income