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:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $199,000 of the fixed manufacturing expenses and $114,000 of the fixed selling and administrative expenses are avoidable if product N28X is discontinued.

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.)

Should the product be dropped?

Nutall Corporation is considering dropping product N28X. Data from the company's accounting system appear below:

Explanation / Answer

1. Total expense on N28X = (variable expense + fixed expense) = 336,000 + (199,000 + 114,000) = $649,000

Revenue = $730,000

There, net operating income would reduce by $730,000 - $649,000 = $81,000

2. Since, expense on N28X is less that sales revenue from this product, net income will reduce if this is dropped, Hence, this product should not be dropped.

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