question archive The management of Beynon Company is considering dropping the product R15
The management of Beynon Company is considering dropping the product R15
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The management of Beynon Company is considering dropping the product R15. The below table shows the sales and the variable expenses associated with this product along with all the fixed expenses. All fixed expenses of the company are fully allocated to products. Further investigation has revealed that $75,000 of the fixed manufacturing expenses and $60,000 of the fixed selling and administrative expenses are avoidable if the product R15 is discontinued. What is the effect on the company's overall net operating income if the product R15 is dropped?* Item Amount Sales Variable Expenses Fixed Manufacturing Expenses Fixed Selling and Administrative Expenses $353,000 $150,000 $132,000 $100,000 The overall net operating income will increase by $29,000 The overall net operating income will increase by $68,000 The overall net operating income will decrease by $29,000 The overall net operating income will decrease by $68,000 None of the above
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Answer is The Overall net operating Income will decrease by $68000.
Explanation:
Fixed Expenses Un-avoidable
| Fixed Manufacturing Expenses | 132000-75000 | $57000 |
| Fixed Selling and Administrative Expenses | 100000-60000 | $40000 |
| Total Fixed Expenses After discontinue of R15 | $97000 |
Profit/Loss If Continued Product R15
| Sales | 353000 |
| Less: | |
| Variable Expenses | 150000 |
| Fixed Manufacturing Expenses | 132000 |
| Fixed Selling and Administrative Expenses | 100000 |
| Net Profit / (Loss) | (29000) |
So If Product R15 Discontinued The Overall net operating Income will decrease by $68000 (97000-29000).
