Exam Thomes owil te ESSAY. Write your answer in the space provided or on a separ

Question

Exam Thomes owil te ESSAY. Write your answer in the space provided or on a separate sheet of paper. 1) The management of Bercegeay Corpora tion is considering dropping product Y25C. Data from the company's accounting system appear below: Sales Variable expenses Fixed manufacturing expenses Fixed selling and administrative expenses $610,000 $244,000 $226,000 $17100 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $117,000 of the fixed manufacturing expenses and $78,000 of the fixed selling and administrative expenses are avoidable if product Y25C is discontinued Required a. What is the net operating income eaned by product Y25C according to the company's accounting system? Show your work! b. What would be the effect on the company's overall net operating income of dropping product Y25C? Should the product be dropped? Show your work!

Explanation / Answer

Question - 1 (a)

Net operating loss earned by product Y25C

Question - 1 (b)

Above calculation indicate that loss due to operating the product is only 31000 as against 171000 loss if the product is droped.

Hence, the company should NOT drop the product Y25C

Question - 2  

Above work indicates that, if the offer is accepted, company will incure a loss of 33800.

So, we have suggest NOT to accept the offer.

Sales 610000 (-) Variable cost 244000 Contribution 366000 Fixed cost (226000+171000) 397000 Loss -31000

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