Nutall Corporation is considering dropping product N28X. Data from the company\'

Question

Nutall Corporation is considering dropping product N28X. Data from the company's accounting system appear below: Sales $ 620,000 Variable expense $ 255,000 Fixed manufacturing expenses $ 236,000 Fixed selling and administrative expense $ 184,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $193,500 of the fixed manufacturing expenses and $108,500 of the fixed selling and administrative expenses are avoidable if product N28X is discontinued.

Explanation / Answer

Net operating Income of N28X Details Amt $ Sales Revenue                 620,000 Variable Expense                 255,000 Contribution Margin                 365,000 Fixed Manufacturing Expense                 236,000 Fixed Selling & Admin Expense                 184,000 Net Operating Income/(Loss) =                 (55,000) Net Effect of Dropping N28X Contnue N28X Drop N28X Details Amt $ Amt $ Sales Revenue                 620,000 Variable Expense                 255,000 Contribution Margin                 365,000                            -   Fixed Manufacturing Expense                 236,000                   42,500 Fixed Selling & Admin Expense                 184,000                   75,500 Net Operating Income/(Loss) =                 (55,000)              (118,000) Increase in Net operating Loss                    63,000 So effecr of dropping N28X is increase of net operating loss by $63000

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