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2 years ago

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

Business

1 answer:

Oksana_A [137]2 years ago

7 0

Answer and Explanation:

a. The computation of the net operating income earned is shown below:

Sales $800,000

Less: Variable cost -$381,000

Contribution margin $419,000

Less: Fixed manufacturing expenses - $263,000

Less : Fixed selling and administrative expenses - $211,000

Net operating income or (Loss) -$55,000

b. The computation of the financial advantage (disadvantage) of dropping product D14E is shown below:

Sales $800,000

Less: Variable cost -$381,000

Contribution margin $419,000

Less: Fixed manufacturing expenses - $202,500

Less : Fixed selling and administrative expenses - $117,500

Financial disadvantage -$99,000

Since there is a financial disadvantage so the product should not be dropped

We simply applied the above equation

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