Question

Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below: Sales...

Suire Corporation is considering dropping product D14E. Data from the company's accounting system appear below:

Sales

$

   800,000

Variable expenses

$

   381,000

Fixed manufacturing expenses

$

   263,000

Fixed selling and administrative expenses

$

   211,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $202,500 of the fixed manufacturing expenses and $117,500 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.

Required:

Please complete the following table: (no decimals)

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.)

$

What would be the financial advantage (disadvantage) of dropping product D14E? (indicate an advantage as a positive or a disadvantage with a minus)

Should the product be kept or dropped?

Homework Answers

Answer #1
1
Sales 800000
Expenses:
Less: Variable expenses 381000
Less: Fixed manufacturing expenses 263000
Less: Fixed selling and administrative expenses 211000
Net operating income (loss) (55000)
2
Loss in Contribution margin (419000) =381000-800000
Avoidable fixed expenses:
Fixed manufacturing expenses 202500
Fixed selling and administrative expenses 117500
Net change in income (99000)
Financial (disadvantage) (99000)
The product should be kept, not dropped
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