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Product R19N has been considered a drag on profits at Buzzeo Corporation for some time and
management is considering discontinuing the product altogether. Data from the company's
accounting system appear below:
In the company's accounting system all fixed expenses of the company are fully allocated to
products. Further investigation has revealed that $49,400 of the fixed manufacturing expenses
and $40,300 of the fixed selling and administrative expenses are avoidable if product R19N is
discontinued. What would be the effect on the company's overall net operating income if
product R19N were dropped?
Sales $308,000
Variable expenses $135,800
Fixed manufacturing expenses $117,800
Fixed selling and administrative expenses $80,200
Solution
(25,800)
the overall net operating income of a company will decrease by 108,300 is product is
discontinued.
If continued If discontinued
sales 308,000 -
varibale cost (135,800) -
Fixed manufacturing cost 1(17,800) (68,400) [117800-49400]
Fixed selling (80,200) (39900) [80200-40300]
operating income (25,800) (108,300)
Product R19N has been considered a drag on profits at Buzzeo Corporati.docx

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Product R19N has been considered a drag on profits at Buzzeo Corporati.docx

  • 1. Product R19N has been considered a drag on profits at Buzzeo Corporation for some time and management is considering discontinuing the product altogether. Data from the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $49,400 of the fixed manufacturing expenses and $40,300 of the fixed selling and administrative expenses are avoidable if product R19N is discontinued. What would be the effect on the company's overall net operating income if product R19N were dropped? Sales $308,000 Variable expenses $135,800 Fixed manufacturing expenses $117,800 Fixed selling and administrative expenses $80,200 Solution (25,800) the overall net operating income of a company will decrease by 108,300 is product is discontinued. If continued If discontinued sales 308,000 - varibale cost (135,800) - Fixed manufacturing cost 1(17,800) (68,400) [117800-49400] Fixed selling (80,200) (39900) [80200-40300] operating income (25,800) (108,300)