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 405 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:
Avoids Mistakes
The act of preventing errors through careful planning, foresight, and taking corrective measures.
Conscientiousness
A personality trait marked by organization, dependability, and a strong sense of duty.
Deadlines
Specified times or dates by which tasks must be completed or objectives must be achieved.
Big Five
Big Five is a model describing five broad personality traits—openness, conscientiousness, extraversion, agreeableness, and neuroticism—that are used to understand and categorize human personality.
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