Assume that dropping Product JYMP would result in a $90,000 increase in the contribution margin of other products.If Balser chooses to discontinue JYMP, the annual financial advantage (disadvantage) of eliminating this product should be:

A) ($40,000)
B) $40,000
C) ($2,000)
D) $50,000

The company would lose $960,000 in sales while saving only $868,000 in expenses-a net effect of a decrease of $92,000.This would be offset by the $90,000 increase in contribution margin of other products, so the net effect would be a $2,000 financial disadvantage.
Reference: CH11-Ref9
Mcfarlain Corporation is presently making part U98 that is used in one of its products.A total of 7,000 units of this part are produced and used every year.The company's Accounting Department reports the following costs of producing the part at this level of activity: An outside supplier has offered to produce and sell the part to the company for $17.10 each.If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided.The special equipment used to make the part was purchased many years ago and has no salvage value or other use.The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally.