The management of Heider Corporation is considering dropping product J14V. Data

Question

The management of Heider Corporation is considering dropping product J14V. Data from the company's accounting system appear below:

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $247,000 of the fixed manufacturing expenses and $208,000 of the fixed selling and administrative expenses are avoidable if product J14V is discontinued. What would be the effect on the company's overall net operating income if product J14V were dropped?

Sales $990,000 Variable expenses $395,000 Fixed manufacturing expenses $377,000 Fixed selling and administrative expenses $257,000

Explanation / Answer

Overall net operating income would decrease by $140,000.

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