Question

34.

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

Sales	$928,000
Variable expenses	$407,000
Fixed manufacturing expenses	$342,000
Fixed selling and administrative expenses	$249,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $209,000 of the fixed manufacturing expenses and $120,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

According to the company's accounting system, what is the net operating income earned by product V41B?

$(521,000)

$70,000

$521,000

$(70,000)

Answer 1

As per the company's Accounting system, all fixed Expenses are fully allocated to the product to calculate Net Operating Income (Whether they are avoidable or unavoidable).
So both fixed Expenses (whether avoidable or not avoidable) shall be deducted to calculate Net Operating Income.

Calculation of Net Operating Income -
Net Operating Income = Sales - Variable Expenses - Fixed Manufacturing Expenses - Fixed Selling and Administrative Expenses

Net Operating Income = $928,000 -$407,000 - $342,000 - $249,000

Net Operating Income = $(70,000)

Hence, the correct answer is D) $(70,000)