Biden Company sells two items, product A and product B. The company is considering dropping product B. It is expected that sales of product A will increase by 40% as a result. Dropping product B will allow the company to cancel its monthly equipment rental costing $200 per month. The other existing equipment will be used for additional production of product A. One employee earning $500 per month can be terminated if product B production is dropped. Biden's other fixed costs are allocated and will continue regardless of the decision made. A condensed, budgeted monthly income statement with both products follows:
Required:
Prepare an incremental analysis to determine the financial effect of dropping product B.
Definitions:
Error-free Decisions
Decisions that are made without any mistakes, often considered an ideal or theoretical concept in decision-making processes.
Impulse Buying
The act of purchasing items on the spur of the moment, often without prior planning.
Hardwired Heuristics
Cognitive shortcuts or rules of thumb that are ingrained or innate, often leading to quick decision-making or judgments.
Behavior Change
A modification in an individual's actions, habits, or attitudes, often targeted through various interventions for health or social improvement.
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