Management is considering dropping product AC902 Data from the company\'s accoun

Question

Management is considering dropping product AC902 Data from the company's accounting system appear below. $49.000 of the fixed manufacturing expenses and $30,000 of the fixed selling and administrative expenses could be avoided if product AC902 is discontinued What would be the effect on the company's overall net operating income if product AC902 were dropped? Overall net operating income would decrease by $59,000 O Overall net operating income would decrease by $22,000. Q Overall net operating income would Increase by $59,000 Q Overall net operating income would increase by $22,000

Explanation / Answer

Answer: The overall net operating income would decrease by $ 59,000, if the product AC 902 was to be discontinued.

Workings:

Hence it is clear that product AC902 was contributing a net operating income of $ 59,000. If the product is discontinued, the company's overall net operating income decreases by the same amount.

$ Sales 270,000 Variable costs 132,000 Contribution margin 138,000 Less avoidable fixed costs 79,000 Profit 59,000

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