Product A is one of several products in a company\'s product portfolio. Financia

Question

Product A is one of several products in a company's product portfolio. Financial Information regarding product A is shown below:

85,000

The company considers discontinuing product A from its current product portfolio. Discontinuing product A would NOT affect the company's sales of its other product lines, its general factory overhead, or its purchasing department expenses. The equipment has no resale value. If product A is discontinued, then the company's net operating income will _______ (increase/decrease) by $__________.

Please can you post how to solve the problem and the answer please? I want to understand how to reach to the answer as well. Thank you!

Sales 1,000,000 Variable Expenses Variable Manufacturing Expenses 450,000 Sales commisions 150,000 Shipping

85,000

Total Variable Expenses 685,000 Contribution Margin 315,000 Fixed Expenses: Salary of product-line manager 75,000 General Factory Overhead 80,000 Depreciation on equipment 75,000 Direct Advertising 240,000 Insurance on Inventories 55,000 Purchasing Deparment 85,000 Total Fixed Expenses 610,000 Net Operating Income (295,000)

Explanation / Answer

Calculation of Total expenses that will be continued after discontinuing of Product A:

Loss that will saved by discontinuing of Product A= ($295,000)

So, net operating income will increase by $55,000. (295,000 - 240,000)

Amount($) General Factory Overhead 80,000 Depreciation on Equipment 75,000 Purchasing Department 85,000 Total 240,000

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