The management of furrow corporation is considering dropping product Lo7E. data

ID: 2387246 • Letter: T

Question

The management of furrow corporation is considering dropping product Lo7E. data from the company's accounting system appear below: Sales $830,000, Variable expense $365,000, fixed manufacturing $291,000, fixed selling administrative $160,000. in the company's accounting system all fixed expenses of the company are fully allocated to products further investigation have revealed that $186,000 of the fixed manufacturing expenses and $106,000 of the fixed selling and administrative expense are avoidable if product Lo7E is discontinue . what would be the effect on the company overall net operating income if product Lo7E were dropped?

Explanation / Answer

Continue

Discontinue

Net income increase/(decrease)

Sales

830,000

(830,000)

Less Variable Costs

365,000

Contribution Margin

465,000

(465,000)

Fixed Costs

451,000

159,000

292,000

Net income

14,000

(159,00)

(173,000)

If they discontinue, overall net income will decrease by $173,000.