Westover Corporation is considering dropping product JPL8. Data from the company

Question

Westover Corporation is considering dropping product JPL8. Data from the company's accounting system appear below: Sales $ 680,000 Variable expense $ 300,000 Fixed manufacturing expenses $ 248,000 Fixed selling and administrative expense $ 196,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $196,500 of the fixed manufacturing expenses and $111,500 of the fixed selling and administrative expenses are avoidable if product JPL8 is discontinued. Required: a. According to the company's accounting system, what is the net operating income earned by product JPL8? (Input the amount as a positive value. Omit the "$" sign in your response.)

What would be the effect on the company's overall net operating income of dropping product JPL8?(Input the amount as a positive value. Omit the "$" sign in your response.)

Should the product be dropped?

What would be the effect on the company's overall net operating income of dropping product JPL8?(Input the amount as a positive value. Omit the "$" sign in your response.)

Explanation / Answer

1)Present Income provided by product JPL 8 = sales -variable cost -fixed expenses

                                                                       = 680000-300000-248000-196000 = -64000

Income if product JPL8 is dropped = 0 - 0- (248000-196500) - (196000- 111500)

                                               = 0-51500 - 84500

                                                   = - 136000

Net operating income will decrease by 136000- 64000 = $ 72000 if product is dropped.

B-2)No , as operating income of company is decreased

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