A study has been conducted to determine if Product A should be dropped. Sales of
ID: 2432683 • Letter: A
Question
A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would:
decrease by $20,000 per year
increase by $20,000 per year
decrease by $10,000 per year
increase by $30,000 per year
a.decrease by $20,000 per year
b.increase by $20,000 per year
c.decrease by $10,000 per year
d.increase by $30,000 per year
Explanation / Answer
Hence if product A is dropped;decrease in Net operating income=(40000-30000)=$10000(C).
Current Proposed Sales 200,000 - Less:Variable cost $140000 - Contribution margin $60000 - Less:Fixed cost $90000 $40000 Net operating income ($30000) ($40000)Related Questions
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