Question

Question 4 KEE! OR DROP Bailey Company manufactures and sells a number of products, including Product R. Results from last year from the sale of Product R are given below: Sales revenue 450,000 Bailey Company is considering eliminating the production and sale of Product R. The company has determined that if Product R is discontinued, the contribution margin of its other products wilt increase by $40,000 Based on a cost analysis, the management of Bailey Company has determined that if Product R is discontinued the company's net income will decrease by $25,000 Calculate the amount of allocated general overhead cost for Product R incurred last year.

Answer 1

Answer:

Comparative statement showing the change in net operating income

Particulars	By continuing	By Discontinuing	Increase/(decrease in income)
Sales	$             750,000
Less: variable Costs
Variable Production Costs	$           (450,000)
Sales commission	$           (110,000)
Total Variable Cost	$           (560,000)
Contribution Margin	$             190,000
Less: Fixed Costs
Salary of Product manager	$             (95,000)
Fixed product advertising	$             (80,000)
Fixed manufacturing overhead	$             (70,000)	$                 (70,000)
Total Fixed Cost	$           (245,000)
Net operating income	$             (55,000)	$                 (70,000)	$                                           (15,000)

By Continuing net loss will increase by $15,000 which means net operating income will decrease by $15,000