Question

3. Timeland Corporation is considering dropping product B. Data from the company's accounting system appear Below Sales 360,000.00 Variable expenses 158,000.00 Fixed manufacturing expenses 119,000.00 Fixed selling and administrative expenses All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product B is discontinued Required: a. According to the company's accounting system, what is the net operating income earned by product B? b. What would be the effect on the company's overall net operating income of dropping product B? Should the product be dropped?

Answer 1

a)

Sales	360,000.00
Variable Expense	158,000.00
Contribution Margin	202,000.00
Fixed Manufacturing Exp	119,000.00
Fixed Selling and Administrative Expenses	94,000.00
Net loss	-   11,000.00

b)

Sales	-
Variable Expense	-
Contribution Margin	-
Fixed Manufacturing Exp	64,000.00
Fixed Selling and Administrative Expenses	23,000.00
Net loss	-   87,000.00

The overall loss will increase to 87,000 if the product B is dropped