15

The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below:

Sales	$	917,000
Variable expenses	$	396,000
Fixed manufacturing expenses	$	331,000
Fixed selling and administrative expenses	$	238,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $198,000 of the fixed manufacturing expenses and $109,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued.

According to the company's accounting system, what is the net operating income (loss) earned by product D74F? Include all costs in this calculationwhether relevant or not.

16

The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below:

Sales	$	942,000
Variable expenses	$	415,000
Fixed manufacturing expenses	$	356,000
Fixed selling and administrative expenses	$	263,000

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 D74F is discontinued.

What would be the financial advantage (disadvantage) from dropping product D74F?