Question
TB Problem Qu. 12-178 Suire Corporation is considering dropping. Sulre Corporation Is considering dropping product D14E. Data from the company's accounting system appear below sales Variable expenses Fixed Bavatscturing expenses Pixed selling and admialetrative expenaes $630-00 $265, 000 8238, 000 186,00D All fiwed expenses of the company are fully allocated to products In the company's accounting system. Further Investigation has revealed that $194,000 of the fixed manufacturing expenses and $109,000 of the fised selling and administrative expenses are avoldable W product D14E is discotinued. Required a. According to the company's accounting system, what is the net operating Income earned by product D14E? (Net losses should be Indicated by a minus sign) at wou'd be the financial advantage (disadvantage) of dropping product DI4E? Should the product be dropped? Net operating inome 0oss Financial advantage (dsadvantage) b The product dropped
Explanation / Answer
Keep the product Drop the product Difference Sales 630000 0 Variable expenses 265000 0 Contribution margin 365000 0 Fixed expenses: Fixed manufacturing expenses 238000 44000 Fixed selling and administrative expenses 186000 77000 Total fixed expenses 424000 121000 Net operating income(loss) -59000 -121000 -62000 a Net operating income(loss) = -59000 b Net operating income would decline by $62000. Product should not be dropped
