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Acme Brands is thinking dropping one of its mediocre performing products. If dropped, Acme can straight away get rid of $20,000 of fixed costs. $10,000 of fixed costs can be re-allotted to another product where it will effect in increase of $12,000 in contribution margin for product. Compute the financial benefit or disadvantage of dropping product given its present performance:

Sales $100,000
Variable costs 60,000
Contribution margin 40,000
Fixed costs 50,000
Net operating loss $ (10,000)

Business Management, Management Studies

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