The management of Thews Corporation is considering dropping product E28I. Data f
ID: 2376044 • Letter: T
Question
The management of Thews Corporation is considering dropping product E28I. Data from the company%u2019s accounting system appear below:
Sales
478,000
Variable expenses
209,000
Fixed manufacturing expenses
162,000
Fixed selling and administrative expenses
139,000
All fixed expenses of the company are fully allocated to products in the company%u2019s accounting system. Further investigation has revealed that $76,000 of the fixed manufacturing expenses and $66,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
What is the net operating income (loss) earned by product E28I according to the company%u2019s accounting system? (Input the amount as positive value. Omit the "$" sign in your response.)
What would be the effect on the company%u2019s overall net operating income of dropping product E28I?(Input the amount as positive value. Omit the "$" sign in your response.)
The management of Thews Corporation is considering dropping product E28I. Data from the company%u2019s accounting system appear below:
Explanation / Answer
a. 478,000-209,000-162,000-139,000
= loss of 32,000
answer: Loss of 32,000
b.
effect:
-478,000+209,000+76,000+66,000
= decrease of 127,000
Answer: Decrease of 127,000
The product should not be dropped
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