Wedgewood Ltd. sells two products, Alpha and Beta. The company is considering dropping product Beta. It is expected that sales of Alpha will increase by 40% as a result. Dropping Beta 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 Alpha. One employee earning

Sep 8, 2023

  1. Wedgewood Ltd. sells two products, Alpha and Beta. The company is considering dropping product Beta. It is expected that sales of Alpha will increase by 40% as a result. Dropping Beta 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 Alpha. One employee earning $200 per month can be terminated if Beta production is dropped. Clinton’s other fixed costs are allocated and will continue regardless of the decision made. Currently Alpha has sales of $10,000, allocated overhead of $1,000, equipment rental is $300 and operating income of $4,200. Beta has sales of $8,000, allocated overhead of $2,100, equipment rental is $2,600 and operating income of $100. All other costs are variable.
  2. What is the total financial effect of dropping the Beta product?

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