Stevens Shaping Corportion produces metal products in the Cincinnati area. Steve

Question

Stevens Shaping Corportion produces metal products in the Cincinnati area. Stevens is considering dropping product A2B. 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 $204,000 of the fixed manufacturing expenses and $119,000 of the fixed selling and administrative expenses are avoidable if product A2B is discontinued.

According to the company's accounting system, what is the net operating income earned by product A2B? (Input the amount as a positive value. Omit the "$" sign in your response.)

What would be the effect on the company's overall net operating income of dropping product A2B? (Input the amount as a positive value. Omit the "$" sign in your response.)

Should the product be dropped?

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

Explanation / Answer

a)

b)1.

b)2. if the company discontinued product A2B net income of total company will decrease by $91,000. so company should not drope the product

Sales $   830,000 Less: Variable expenses $ (416,000) Less: Fixed manufacturing expenses $ (266,000) Less: Fixed selling and administrative expenses $ (214,000) Net operating loss $   (66,000)

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