The management of Freshwater Corporation is considering dropping product C11B. D
ID: 2472367 • Letter: T
Question
The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $209,500 of the fixed manufacturing expenses and $120,500 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.
What would be the effect on the company's overall net operating income if product C11B were dropped?
The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:
Explanation / Answer
overall net operating income would decrease by $191,000
Keep the Product Drop the product Differenc Sales $927,000 $0 ($927,000) Variable expenses ($407,500) $0 $407,500 Contribution Margin $519,500 $0 ($519,500) Fixed manufacturing exp ($341,000) $209,500 $550,500 Fixed selling and administrative exp ($248,000) $120,500 $368,500 Net operating profit/loss ($69,500) ($260,500) ($191,000)Related Questions
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