The management of fan corporation is considering dropping product H58S.data form
ID: 2466388 • Letter: T
Question
The management of fan corporation is considering dropping product H58S.data form the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated "to products. Further investigation has revealed dM $90,000 of the fixed manufacturing expenses and $42,000 of the fixed selling and administrative expenses are avoidable if product H58S is discontinued. What would be the effect on the company's overall net operating income if product H58S were dropped? A.Overall net operating income would decrease by $137,000. B.Overall net operating income would increase by SI37,000. C. Overall net operating income would decrease by S151,000. D. Overall net operating income would increase by SI51,000.Explanation / Answer
Answer : Overall net operating income will decrease by $137000.
=> Net Operating Profit of product H58S = 490000 - 221000 - 152000 - 98000 = $19000
If product H58S get dropped, the overall net operating income of the company will decrease by
(Loss of NOP of H58S = 19000 + Unaviodable fixed expenses of H58S $118000) = $137000
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