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)
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