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!

Question

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!

Tracey MacDonald · Accepted Answer

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.

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