Clinton 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 $100 per month.The other existing equipment will be used for additional production of product A.One employee earning $200 per month can be terminated if product B production is dropped.Clinton'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:
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