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 $830,000 Variable expenses $390,000 Fixed manufacturing expenses $266,000 Fixed selling and administrative expenses $232,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $111,000 of the fixed manufacturing expenses and $103,000 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 earned by product D74F? Include all costs in this calculation—whether relevant or not. a. $58,000 b. $440,000 c. $58,000 d. $440,000

Answer 1

Answer:

$-58,000

Explanation:

As we are computing for operating income earned as per the company's accounting system, we will use all absorbed and allocated costs.

Sales                                                          $830,000    

Less:

Variable expenses                                    $390,000

Manufacturing expenses                          $266,000

Fixed Selling and Admin                            $232,000

Profit as per Accounting system               $-58,000

According to the accounting system, there is a loss of $58,000 for D74F

Hope that helps.

Answer 2

Answer:

From the data given

the total sales=$830,000

variable expenses=$390000

Then the net operating income=Net sales-variable expenses

Net operating income=$440000

option D