Question

Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below:

Sales $ 720,000

Variable expenses $ 331,000

Fixed manufacturing expenses $ 255,000

Fixed selling and administrative expenses $ 203,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $198,500 of the fixed manufacturing expenses and $113,500 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.

Required: Please complete the following table: (no decimals) 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.)

What would be the financial advantage (disadvantage) of dropping product D14E? (indicate an advantage as a positive or a disadvantage with a minus)

Should the product be kept or dropped?

Answer 1

Answer -

1. Answer -

Net operating income (loss) = ($69000)

Calculation:

Sales	$720000
Less:
Variable expenses	($331000)
Fixed manufacturing expenses	($255000)
Fixed selling and administrative expenses	($203000)
Net operating income (loss)	($69000)

2. Answer -

Financial disadvantage of dropping product D14E = $243000

So, The product D14E should not be dropped.

Calculation:

If dropped the product net operating income (loss) = ($312000)

Sales	$0
Less:
Variable expenses	$0
Fixed manufacturing expenses	($198500)
Fixed selling and administrative expenses	($113500)
Net operating income (loss)	($312000)

Here,

Net operating income would decline by $243000 [($312000) - ($69000)] if product D14E were dropped.