Astudy has been conducted to determine if product a should be dropped. sales of the product total $500,000; variable expenses total $340,000. fixed expenses charged to the product total $210,000. the company estimates that $60,000 of these fixed expenses are not avoidable even if the product is dropped. if product a is dropped, the annual financial advantage (disadvantage) for the company of eliminating this product should be:

(a) ($10,000)
(b) $10,000
(c) ($50,000)

(A) ($10,000)

Explanation:

This is the actual situation with the product A on production.

500.000,00  Sales of the product total

-340.000,00  variable expenses total

-210.000,00  Fixed expenses charged to the product total  

-50.000,00  Income

If the product A is dropped the company not loose anymore the ($50,000) of income but the company must pay the $60,000 of fixed expenses, so the company will have a disadvantage of ($10,000).

Conversion cost= $146,000

Explanation:

Giving the following information:

Direct materials $400,000

Direct labor 36,000

Manufacturing overhead 110,000

What was the conversion cost for the last month?

Conversion cost= direct labor + manufacturing overhead

Conversion cost= 36,000 + 110,000= $146,000