Question

The management of Cabo Corporation is considering dropping product V30T. Data from the company's accounting system appear below:

Sales	$933,000
Variable expenses	$412,000
Fixed manufacturing expenses	$347,000
Fixed selling and administrative expenses	$254,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $214,000 of the fixed manufacturing expenses and $125,000 of the fixed selling and administrative expenses are avoidable if product V30T is discontinued.

According to the company's accounting system, what is the net operating income earned by product V30T?

Answer 1

Product V30T

Sales                                               - 933,000

Variable expoenses                        - (412,000)

Fixed manufacturing expenses*    - (214,000)

Fixed selling & admin expenses*   - (125,000)

Net Operating income                      182,000

* these fixed expenses are avoidable if the product is discontinued, it means that these fixed expense are related to this product