Balser Company manufactures and sells a product called JYMP. Results of last yea

Question

Balser Company manufactures and sells a product called JYMP. Results of last year for the manufacture and sale of JYMP's are as follows:


Sales (8,000 JYMPs at $120 each) ...............................................
$ 960,000

Less costs:

Variable production costs ..........................................................
464,000

Sales commissions (15% of sales) .............................................
144,000

Salary of product line manager .................................................
100,000

Fixed product line advertising ..................................................
160,000

Fixed manufacturing overhead .................................................
132,000

Total costs ....................................................................................
1,000,000

Net operating loss .........................................................................
$ (40,000 )



Balser anticipates no change in the operating results for JYMP in the foreseeable future. Balser is reexamining all of its product lines and is trying to decide whether or not to discontinue the manufacture and sale of JYMPs. Total fixed manufacturing overhead costs would not be affected by a decision to drop any one product line.

Marks: --/3 Assume that discontinuing the manufacture and sale of JYMP's will have no effect on other product lines. If the company discontinues the JYMP product line, the change in annual operating income due to this decision is: ?

Explanation / Answer

Here we observed the JYMP’s product line has Net Operating Loss. If the company discontinues the JYMP product line, the firms overall Annual Operating Income would be increased. Because here discontinuing the JYMP product line would reducing Net Operating loss.

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