Chap 12 QZ (QUESTION 1) Suire Corporation is considering dropping product D14E.

Question

Chap 12 QZ (QUESTION 1)

Suire Corporation is considering dropping product D14E. 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 $196,500 of the fixed manufacturing expenses and $111,500 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?

Sales $ 680,000 Variable expenses $ 300,000 Fixed manufacturing expenses $ 248,000 Fixed selling and administrative expenses $ 196,000

Explanation / Answer

The product should not be dropped.

a. Net operating income (loss) $      -64,000 b. Financial advantage (disadvantage) $      -72,000

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