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16 February, 18:22

Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below: Sales $ 670,000 Variable expenses $ 295,000 Fixed manufacturing expenses $ 246,000 Fixed selling and administrative expenses $ 194,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $196,000 of the fixed manufacturing expenses and $111,000 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? (Net losses should be indicated by a minus sign.) b. What would be the financial advantage (disadvantage) of dropping product D14E? Should the product be dropped?

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  1. 16 February, 18:29
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    a. According to the company's accounting system, what is the net operating income earned by product D14E? (Net losses should be indicated by a minus sign.)

    net loss - $65,000

    b. What would be the financial advantage (disadvantage) of dropping product D14E? Should the product be dropped?

    financial disadvantage of discontinuing the produce is - $68,000, so the company should not discontinue the product since its losses would increase

    Explanation:

    total sales $670,000

    - variable expenses $295,000

    - fixed manufacturing expenses $246,000

    - fixed selling and administrative expenses $194,000

    net loss = $65,000

    if product D14E is discontinued, $196,000 + $111,000 = $307,000, of fixed expenses can be avoided, but $133,000 are not avoidable. if the company discontinues the product, its losses will increase by $133,000 - $65,000 = $68,000
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