Question
Down at ABC Corporation, one of the products, R2D2 has been considered a drag on profits for some time. In fact, management is considering discontinuing
Down at ABC Corporation, one of the products, R2D2 has been considered a drag on profits for some time. In fact, management is considering discontinuing the product altogether. Data from the company's accounting system appear below:
Sales | $254,000 |
Variable expenses | $108,000 |
Fixed manufacturing expenses | $101,000 |
Fixed selling and administrativeexpenses | $62,000 |
In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $48,000 of the fixed manufacturing expenses and $32,000 of the fixed selling and administrative expenses are avoidable if product R2D2 is discontinued. What would be the effect on the company's overall net operating income if product R2D2 were dropped? |
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