A company is considering dropping product NAU15 Sales of the product total $200,

Question

A company is considering dropping product NAU15 Sales of the product total $200,000 per year; and variable expenses total $140,000 per year Fixed expenses allocated 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 Based on this data, if product NAU15 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

Explanation / Answer

Answer : the company's overall net operating income would decrease by $ 10,000 per year

Workings:

Contribution lost if the prodiuct NAU15 is dropped    = 200,000 - 140,000 = $ 60,000

Less: Fixed cost saved if the product is dropped      =   90,000 - 40,000 =    50,000

Decrease in net operating income                           =                                 10,000 $

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.