The management of Kabanuck Corporation is considering dropping product V41B. Dat

Question

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below: Sales $890,000 Variable expenses $374,000 Fixed manufacturing expenses $329,000 Fixed selling and administrative expenses $258,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $184,000 of the fixed manufacturing expenses and $200,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued. What would be the effect on the company's overall net operating income if product V41B were dropped?

Explanation / Answer

Answer Income from Sale of Product V41B Sales 890000 Variable Expenses 374000 Fixed Manufacturing Expenses 329000 703000 Gross Profit 187000 Fixed Selling & administrative Exp. 258000 Net Income/Loss       (71,000) Unavoidable Fixed expenses Fixed Manufacturing Expenses 329000 Avoidable Fixed Manufacturing Expenses 184000 Unavoidable Fixed Manufacturing Expenses 145000 Fixed Selling & administrative Exp. 258000 Avoidable Fixed Selling & admin Expenses 200000 Unavoidable Fixed Manufacturing Expenses 58000 Total Unavoidable Fixed expenses 203000 If Company discontinue the sale of product V41B Its net Income decrease by Total Unavoidable Fixed expenses 203000 Net loss on sale of product 71000 Its net Income decrease by 132000

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