Business

Anabel Lam

11 November, 19:55

The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow:

Sales of 15,000 units $150,000

Variable expenses 120,000

Contribution margin 30,000

Fixed expenses 40,000

Net operating loss $ (10,000)

If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable. The annual financial advantage (disadvantage) for the company from discontinuing the production and sale of Doombugs would be:

a. $10,000

b. ($22,000)

c. $18,000

d. ($30,000)