Question

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 $ 780,000 $365,000 $261,000 $209,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $201,500 of the fixed manufacturing expenses and $116,500 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? a Net operating income (loss) Financial advantage (disadvantage) b. The product droppe

Answer 1

Problem 1 – Suire Corporation

Part a – Net Operating Income by Product D14E, according to accounting system

Sales	$780,000
Less: Expenses
Variable Expense	($365,000)
Fixed manufacturing expenses	($261,000)
Fixed Selling and Administrative expenses	($209,000)
Net Operating Income / (loss)	($55,000)

Part b –

Financial Advantage /(Disadvantage) of dropping product D14E

	Dropping of Product D14E
Saving in Fixed manufacturing expenses	$201,500
Saving in Fixed Selling and Administrative expenses	$116,500
Loss of Contribution Margin (Sales 780,000 - Variable Expense 365,000)	-$415,000
Financial Disadvantage	($97,000)

The product should not be dropped

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Pls ask separate question for other parts problems