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 $ 830,000
Variable expense $ 416,000
Fixed manufacturing expenses $ 266,000
Fixed selling and administrative expense $ 214,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $204,000 of the fixed manufacturing expenses and $119,000 of the fixed selling and administrative expenses are avoidable if product N28X is discontinued.

Required:
a.

According to the company's accounting system, what is the net operating income earned by product N28X? (Input the amount as a positive value. Omit the "$" sign in your response.)

$

b-1.

What would be the effect on the company's overall net operating income of dropping product N28X? (Input the amount as a positive value. Omit the "$" sign in your response.)

Net operating income would be by $ .

b-2.

Should the product be dropped?


Yes or No?

Explanation / Answer

a) Net operating income = $ (830 - 416 - 266 - 214) *1000 = -66000

So, there is a loss of $66000.

b-1) Non avoidable fixed component = (266,000 - 204,000) + (214,000 - 119,000) = $157,000

So, if the product is dropped, the company would incur a loss of $157,000.

b-2) No, the product should not be dropped as there is more loss in dropping the product.

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