Asked by TANIE ETIENNE on May 16, 2024
Verified
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 $72,000 of the fixed manufacturing expenses and $48,000 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? Show your work!
b.What would be the financial advantage (disadvantage)of dropping product D14E? Should the product be dropped? Show your work!
Fixed Expenses
Costs that do not change in total regardless of changes in the level of activity or volume, such as rent and insurance premiums.
Net Operating Income
A profitability metric that calculates a company's potential income by subtracting operating expenses from revenue, excluding taxes and interest.
- Determine the financial ramifications of either implementing or halting a product line, referencing pertinent and extraneous costs.
Verified Answer
TM
Tracey MacDonaldMay 23, 2024
Final Answer :
a.According to the company's accounting system, the product's net operating loss is $7,000. b.Dropping product D14E would result in a financial disadvantage of $64,000.Therefore, the product should not be dropped.
Learning Objectives
- Determine the financial ramifications of either implementing or halting a product line, referencing pertinent and extraneous costs.
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