Bingham Company Manufactures and Sells Product J Bingham Company Anticipates No Change in the Operating Result for Year

question 50

Multiple Choice

Bingham Company manufactures and sells Product J. Results for last year for the manufacture and sale of Product J are as follows:

$\begin{array}{|l|r|}\hline \text { Sales }(10,000 \text { units at } \$ 160 \text { each) } & \$ 1,600,000 \\\hline \text { Less: Costs; } & \$ 960,000 \\\hline \text { Variable Production Costs } & \$ 240,000 \\\hline \text { Sales Commisions }-15 \% \text { of Sales } & \$ 195,000 \\\hline \text { Salaries of Line Supervisors } & \$ 180,000 \\\hline \text { Traceable Fixed Factory Overhead (Allocated to } & \$ 170,000 \\\text { product on the Basis of Square Meters Occupied) } & \\\hline \text { Total Cost } & \$ 1,745,000 \\\hline \text { Operating Income (Loss) } & \$ 145,000 \\\hline\end{array}$

Bingham Company anticipates no change in the operating result for Product $\mathrm{J}$ in the foreseeable future if the product is produced. Bingham is re-examining all of its products and is trying to decide whether or not to discontinue the manufacture and sale of Product J. The company's total fixed factory overhead cost would not be affected by this decision.
-Assume that discontinuing Product J would result in a $100,000 increase in the contribution margin of other product lines.How many units of Product J would have to be sold next year for the company to be as well off as if it just dropped Product J and enjoyed the increase in contribution margin from other products?

• A) 2,500 units.
• B) 11,875 units.
• C) 15,500 units.
• D) 16,125 units.

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Definitions:

Behavior

The actions or reactions of an organism, typically in response to its environment.

Cognitive Dissonance

The mental discomfort experienced by a person holding two or more contradictory beliefs, values, or ideas.

Dissonance

A psychological or emotional state of tension resulting from conflicting attitudes, beliefs, or behaviors.

Festinger

Leon Festinger, an American social psychologist known for his theory of cognitive dissonance, which describes the discomfort experienced when holding two or more conflicting cognitions.