TB Problem Qu. 12-178 Suire Corporation is considering dropping Suire Corporatio

Question

TB Problem Qu. 12-178 Suire Corporation is considering dropping Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below: Sales Variable expenses Fixed manufacturing expenses Fixed selling and administrative expenses $790,000 $376,000 $262,000 $210,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $202,000 of the fixed manufacturing expenses and $117,000 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued. 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.) b. What would be the financial advantage (disadvantage) of dropping product D14E? Should the product be dropped? $ (58,000) a. Net operating income (loss) b. Financial advantage (disadvantage) The product should not be dropped

Explanation / Answer

a Net operating income(loss)=790000-376000-262000-210000= -58000 b Loss in contribution margin -414000 =376000-790000 Avoidable fixed costs 319000 =202000+117000 Financial advantage(disadvantage) -95000 The product should not be dropped

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