The management of Fannin Corporation is considering dropping product H58S.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 $90,000 of the fixed manufacturing expenses and $42,000 of the fixed selling and administrative expenses are avoidable if product H58S is discontinued.What would be the effect on the company's overall net operating income if product H58S were dropped?
A)Overall net operating income would decrease by $137,000.
B)Overall net operating income would increase by $137,000.
C)Overall net operating income would decrease by $151,000.
D)Overall net operating income would increase by $151,000.

Question

Quizplus · Accepted Answer

11eaa3fe_3436_35bf_908b_83b313896561_TB2461_00 The segment margin of $137,000 would be lost if product H58S were dropped and net operating income would decrease by $137,000.Therefore,the product should not be dropped.Another way of saying this is that the company is actually currently making $137,000 on this product.

The Management of Fannin Corporation Is Considering Dropping Product H58S