Asked by Taylor Casbon on Jun 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 $204,000 of the fixed manufacturing expenses and $119,000 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?b. What would be the financial advantage (disadvantage) of dropping product D14E? Should the product be dropped?
Fixed Manufacturing Expenses
Costs that do not vary with the level of production or sales, such as rent, salaries of permanent staff, and equipment depreciation.
Fixed Selling
Refers to selling expenses that remain constant regardless of the level of sales or production activity.
Administrative Expenses
Costs associated with the general management and administration of a business, such as salaries of executive personnel, legal and professional fees.
- Examine the fiscal impact of eliminating a product or segment, taking into account the associated costs and benefits.
Verified Answer
KA
Kritsadanukorn AmbrosiaJun 23, 2024
Final Answer :
a. According to the company's accounting system, the product's net operating loss is ${{[a(24)]:#,###}}.
![a. According to the company's accounting system, the product's net operating loss is ${{[a(24)]:#,###}}. b. Dropping product D14E would result in a financial disadvantage of ${{[a(30)]:#,###}}. Therefore, the product should not be dropped.](https://d2lvgg3v3hfg70.cloudfront.net/TB8314/11eb6b8f_62eb_601a_bf83_35b7c4f4ab0b_TB8314_00.jpg)
b. Dropping product D14E would result in a financial disadvantage of ${{[a(30)]:#,###}}. Therefore, the product should not be dropped.
![a. According to the company's accounting system, the product's net operating loss is ${{[a(24)]:#,###}}. b. Dropping product D14E would result in a financial disadvantage of ${{[a(30)]:#,###}}. Therefore, the product should not be dropped.](https://d2lvgg3v3hfg70.cloudfront.net/TB8314/11eb6b8f_62eb_601b_bf83_f52079b1606d_TB8314_00.jpg)
b. Dropping product D14E would result in a financial disadvantage of ${{[a(30)]:#,###}}. Therefore, the product should not be dropped.
Learning Objectives
- Examine the fiscal impact of eliminating a product or segment, taking into account the associated costs and benefits.