Question

Nutall Corporation is considering dropping product N28X. Data from the company's accounting system regarding product N28X appear below:

Sales	$	840,000
Variable expense	$	421,000
Fixed manufacturing expenses	$	267,000
Fixed selling and administrative expense	$	215,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $204,500 of the fixed manufacturing expenses and $119,500 of the fixed selling and administrative expenses are avoidable if product N28X is discontinued.

Required:
a.	According to the company's accounting system, what is the net operating income or loss earned by product N28X? (Input the amount as a positive value regardless of whether there is a net operating loss or net operating income.)

     

b-1.	What would be the effect on the company's overall net operating income of dropping product N28X? (Input the amount as a positive value.)

     

b-2.	Should the product be dropped?
	No

Answer 1

According to the company's accounting system, what is the net operating income or loss earned by product N28X?

Sales	840000
Less: Variable expense	-421000
Contribution margin	419000
Less: Fixed manufacturing expense	-267000
Less: Fixed selling and administrative expense	-215000
Net operating income	-63000

Net operating loss = 63000

b1) What would be the effect on the company's overall net operating income of dropping product N28X?

Net operating loss when continue = 63000

Net operating loss when discontinue = 62500+95500 = 158000

So net operating loss increase by = 95000

b2) No