The management of Freshwater Corporation is considering dropping product C11B. D

Question

The management of Freshwater Corporation is considering dropping product C11B. 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 $217,000 of the fixed manufacturing expenses and $128,000 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.

What would be the effect on the company's overall net operating income if product C11B were dropped?

Overall net operating income would increase by $182,000.

Overall net operating income would decrease by $182,000.

Overall net operating income would increase by $92,000.

Overall net operating income would decrease by $92,000.

The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:

Explanation / Answer

Calculate effect of product dropped :

So answer is b) Overall net operating income would decrease by $182000

Continue Drop Sale 942000 0 Variable expense -415000 0 Fixed manufacturing expense -356000 -139000 Fixed selling and administrative expense -263000 -135000 Profit (loss) -92000 -274000

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