Suire Corporation is considering dropping product D14E. Data from the company\'s

Question

Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $205,000 of the fixed manufacturing expenses and $120,000 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.

Required:

a. According to the company's accounting system, what is the net operating income earned by product D14E? (Net losses should be indicated by a minus sign.)

b. What would be the financial advantage (disadvantage) of dropping product D14E? Should the product be dropped?

Sales $ 850,000 Variable expenses $ 426,000 Fixed manufacturing expenses $ 268,000 Fixed selling and administrative expenses $ 216,000

Explanation / Answer

a Contribution margin 424000 =850000-426000 Fixed expenses: Fixed manufacturing expenses 268000 Fixed selling and administrative expenses 216000 Net operating loss -60000 b Loss in Contribution margin -424000 Avoidable costs: Fixed manufacturing expenses 205000 Fixed selling and administrative expenses 120000 Financial (disadvantage) -99000 No, the product should not be dropped

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