Question

The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below: Sales $ 931,000 Variable expenses $ 410,000 Fixed manufacturing expenses $ 345,000 Fixed selling and administrative expenses $ 252,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $212,000 of the fixed manufacturing expenses and $123,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued. According to the company's accounting system, what is the net operating income (loss) earned by product D74F? Include all costs in this calculation—whether relevant or not.

Answer 1

Here first let's calculate the income from the product

Sales. =$931000

Less :

Variable expense = $410000

Fixed manufacturing expense = $345000

Fixed selling and

administrative expense = $252000

Net income = -$76000

But out of this the unavoidable expense is need to be add back

Net income = -$76000

Unavoidable Fixed

manufacturing expense = $133000

Unavoidable Fixed selling

and administrative expenses = $129000

So net income = $186000

The income earned by the product = $186000

Hence solved

If you are satisfied with my answer please upvote it