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Chapter 25 H

Accounting

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Chapter 25 H.W 2: Dropping Product Decision:
D-Home Company manufacturers three items: D1, D2 and D3. The management is
considering dropping item D3 because it has an operating loss.
D1 D2 D3
Sales Revenues $ 52,000 $ 90,000 $ 75,000
Variable Costs (9,000) (62,000) (50,000)
Contribution Margin 43,000 28,000 25,000
Fixed Cost (15,000) (23,000) (36,000)
Net Income $ 28,000 $ 5,000 $ (11,000)
Requirements:
1- Assume the fixed costs are unavoidable, Should D-Home drop item D3?
2- Assume 75% the fixed costs are avoidable, Should D-Home drop item D3?