Product R19N has been considered a drag on profits at Buzzeo Corporation for som

Question

Product R19N has been considered a drag on profits at Buzzeo Corporation for some time and management is considering discontinuing the product altogether. Data from the company's accounting system appear below: Sales $292,000 Variable expenses $134,200 Fixed manufacturing expenses $108,200 Fixed selling and administrative expenses $73,800 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $49,200 of the fixed manufacturing expenses and $30,200 of the fixed selling and administrative expenses are avoidable if product R19N is discontinued. What would be the effect on the company's overall net operating income if product R19N were dropped?

Explanation / Answer

if product R19N is discontinued, company's overall net operating income would be $ 55,200

company's overall net operating income if product R19N continued Particulars $ Sales            292,000 Variable expenses            134,200 Contribution          157,800 Less: Fixed cost Manufacturing expenses            108,200 Selling and administrative expenses              73,800 Profit          (24,200) company's overall net operating income if product R19N were dropped Particulars $ Sales            292,000 Variable expenses            134,200 Contribution          157,800 Less: Fixed cost Manufacturing expenses              59,000 Selling and administrative expenses              43,600 Profit            55,200 Note : It assuming that sales , variable cost remains constant

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