The management of Heider Corporation Is considering dropping product H58S. Data

Question

The management of Heider Corporation Is considering dropping product H58S. Data from the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated to product*. Further investigation has revealed that $255.000 of the fixed manufacturing expenses and $216.000 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?

Explanation / Answer

The effect on the company overll net operationg income if product H58S were dropped should be determined as follows;

H58S continued H58S discontinued Sales 950000 0 Less; variable cost (399000) 0 contribution margin 551000 0 less; fixed expenses fixed manufacturing expenses 381000 fixed selling and administrative expenses 261000 net loss 91000

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