The management of Cackowski Corporation has been concerned for some time with the financial performance of its product I11S and has considered discontinuing it on several occasions.Data from the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products.Further investigation has revealed that $185, 000 of the fixed manufacturing expenses and $132, 000 of the fixed selling and administrative expenses are avoidable if product I11S is discontinued. According to the company's accounting system, what is the net operating income earned by product I11S? Include all costs in this calculation-whether relevant or not.
A)$410, 000
B)$46, 000
C)$(46, 000)
D)$(410, 000)

Question

The management of Cackowski Corporation has been concerned for some time with the financial performance of its product I11S and has considered discontinuing it on several occasions.Data from the company's accounting system appear below:  In the company's accounting system all fixed expenses of the company are fully allocated to products.Further investigation has revealed that $185, 000 of the fixed manufacturing expenses and $132, 000 of the fixed selling and administrative expenses are avoidable if product I11S is discontinued. According to the company's accounting system, what is the net operating income earned by product I11S? Include all costs in this calculation-whether relevant or not.
A)$410, 000 
B)$46, 000 
C)$(46, 000) 
D)$(410, 000)

Quizplus · Accepted Answer

The net operating income earned by product I11S can be calculated as follows:
Sales revenue - Cost of goods sold - Selling and administrative expenses - Manufacturing expenses = Net operating income
$2,752,000 - $1,761,000 - $524,000 - $482,000 = $(15,000)
However, since $185,000 of fixed manufacturing expenses and $132,000 of fixed selling and administrative expenses are avoidable if product I11S is discontinued, the net operating income calculation should be adjusted as follows:
Sales revenue - Cost of goods sold - [(Selling and administrative expenses - $132,000) + (Manufacturing expenses - $185,000)] = Net operating income
$2,752,000 - $1,761,000 - [$524,000 - $132,000 + $482,000 - $185,000] = $(46,000)
Therefore, the net operating income earned by product I11S is a loss of $(46,000). Option C is correct.

The Management of Cackowski Corporation Has Been Concerned for Some