The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $122,000 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.
-What would be the effect on the company's overall net operating income if product C11B were dropped?
A)Overall net operating income would decrease by $188,000.
B)Overall net operating income would increase by $74,000.
C)Overall net operating income would decrease by $74,000.
D)Overall net operating income would increase by $188,000.

Question

The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:  All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $211,000 of the fixed manufacturing expenses and $122,000 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.
-What would be the effect on the company's overall net operating income if product C11B were dropped?
A)Overall net operating income would decrease by $188,000. 
B)Overall net operating income would increase by $74,000. 
C)Overall net operating income would decrease by $74,000. 
D)Overall net operating income would increase by $188,000.

Quizplus · Accepted Answer

If product C11B were dropped, the company's overall net operating income would decrease by $188,000, indicating that C11B contributes positively to the net operating income.

The Management of Freshwater Corporation Is Considering Dropping Product C11B