The management of Cackowski Corporation has been concerned for some time with th
ID: 2564247 • Letter: T
Question
The management of Cackowski Corporation has been concerned for some time with the financial performance of its product I11S and has considered discontinuing it on several occasions. Data from the company's accounting system appear below: Sales $760,000 Variable expenses $350,000 Fixed manufacturing expenses $258,000 Fixed selling and administrative expenses $198,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $185,000 of the fixed manufacturing expenses and $132,000 of the fixed selling and administrative expenses are avoidable if product I11S is discontinued. What would be the effect on the company's overall net operating income if product I11S were dropped?
Explanation / Answer
Particulars Amount ($) Amount ($) Sales 760,000.00 Less: Variable expenses 350,000.00 Contribution 410,000.00 Less: Avoidable fixed expenses Fixed manufacturing expenses 185,000.00 Fixed selling and admin expenses 132,000.00 317,000.00 Overall profit from Product I11S 93,000.00 Conclusion : The company 's net operating income will fall by $93,000 if product I11S were dropped. Note: Only avoidable fixed expenses have been considered since the unanvoidable fixed expenses are going to occur regardless of Product I11S. Please hit the like button if the answer helped you else leave a comment for further clarification. Thank you! All the best!
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