Asked by Juliet Sebastian on Jun 17, 2024
Verified
The management of Schmader Corporation is considering dropping product M12C.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 $137,000 of the fixed manufacturing expenses and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.
Required:
a.What is the net operating income earned by product M12C according to the company's accounting system? Show your work!
b.Determine the financial advantage (disadvantage)for the company of dropping product M12C.Should the product be dropped? Show your work!
Fixed Expenses
Costs that do not change with the level of production or sales, such as rent, salaries, and insurance.
- Investigate the economic impacts of adopting or withdrawing a product line, with attention to relevant and non-relevant expenses.
Verified Answer
SR
Sergio RangelJun 23, 2024
Final Answer :
a.According to the company's accounting system, the product's net operating loss is $39,000. 
b.The financial disadvantage of dropping product M12C is $92,000.Therefore, the product should not be dropped. 
b.The financial disadvantage of dropping product M12C is $92,000.Therefore, the product should not be dropped. 
Learning Objectives
- Investigate the economic impacts of adopting or withdrawing a product line, with attention to relevant and non-relevant expenses.