Question

Extra Credit Project Yous 24 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 $650,000 $280,000 5242.009 $190,000 Book 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? Net operating income (loss) Financial advantage (disadvantage) The product dropped

Answer 1

Solution ③ Net operating income earned by product Dluf accoading to the company's accounting system. Sales 650,000 less: variable expense 280,000 Contribution Mangin 370,000 fixed Expenses: freed manufacturling 242,000 : expenses Pued selling & Admin 190,000 - expenses Tota fixed expenses 432,000 Inet operating income (lass! (62,000) (439,000 -370,000 1 6. Net operating in come when Diu Eis dăopped sales less' variable expenses Contaibution mangin. fixed expenses : unavoidable fined manufacturing expense qu2,000 -195000) 47,000 unavoidable Rived selling Admin Expense (190,000-110,000) 80,000 Total fixed expenses 127,000 Net operating Income (18-21) (197,000

Financial disadvantage of dropping DIYE : 127,000 - 62,000 '5 65,000 The product should not be dropped.