Corporation is considering dropping product N28X. Data from the company’s
accounting system appear below:
All fixed expenses of the company are fully allocated to products in the
company’s accounting system. Further investigation has revealed that $199,000
of the fixed manufacturing expenses and $114,000 of the fixed selling and
administrative expenses are avoidable if product N28X is discontinued.
a. According to the company’s accounting system, what is the net operating
income earned by product N28X? Show your work!
b. What would be the effect on the company’s overall net operating
income of dropping product N28X? Should the product be dropped? Show your
2. Mr. Earl Pearl, accountant for Margie Knall Co.,
Inc., has prepared the following product-line income data:
The following additional information is available:
* The factory rent of $1,500 assigned to Product C is avoidable if the product
* The company’s total depreciation would not be affected by dropping C.
* Eliminating Product C will reduce the monthly utility bill from $1,500 to
* All supervisors’ salaries are avoidable.
* If Product C is discontinued, the maintenance department will be able to
reduce monthly expenses from $3,000 to $2,000.
* Elimination of Product C will make it possible to cut two persons from the
administrative staff; their combined salaries total $3,000.
Prepare an analysis showing whether Product C should be eliminated.