Bayshore is reexamining all of its product lines and is trying to decide whether

Question

Bayshore is reexamining all of its product lines and is trying to decide whether to discontinue Product K. Dropping the product would have no effect on the total fixed manufacturing overhead incurred by the company. Assume that dropping Product K will have no effect on the sale of other product lines. If the company drops Product K, the change in annual net operating income due to this decision will be a:

Select one:

A. $10,000 decrease

B. $150,000 increase

C. $160,000 decrease

D. $310,000 decrease

Explanation / Answer

Dropping of product K would not reflect cost of $160,000 fixed costs, hence the net loss of $150,000 is set off against $160,000 resulting a $10,000 decrease in net operating income. hence the correct answer is "A"

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