Question

dropping product D14E. Data from the company's below Sales Variable expenses Fixed manufacturing expenses Fixed selling and administrative expenses $650,000 $280,000 $242,000 $190,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $195,000 of the fixed manufacturing expenses and $110,000 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? a. Net operating income (loss) b. Financial advantage (disadvantage) S (62,000) 243,000 The product ishould be dropped

Note: I am unsure of my answers so disregard the answers in the box.

Answer 1

a)

Sales	$   650,000
Less: Variable expenses	$ (280,000)
Less: Fixed manufacturing expenses	$ (242,000)
Less: Fixed selling and administrative expenses	$ (190,000)
Net operating income (loss)	$   (62,000)

b)

Sales	$                 -
Less: Variable expenses	$                 -
Less: Fixed manufacturing expenses ($242,000-$195,000)	$   (47,000)
Less: Fixed selling and administrative expenses ($190,000-$110,000)	$   (80,000)
Financial advantages (Disadvantages)	$ (127,000)

The product should not be dropped. if it is dropped, net loss will increase

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