Product L28N has been considered a drag on profits at Beets Corporation for some time and management is considering discontinuing the product altogether. 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 $41,000 of the fixed manufacturing expenses and $25,000 of the fixed selling and administrative expenses are avoidable if product L28N is discontinued. What would be the effect on the company's overall net operating income if product L28N were dropped?
A) Overall net operating income would decrease by $73,000.
B) Overall net operating income would increase by $10,000.
C) Overall net operating income would decrease by $10,000.
D) Overall net operating income would increase by $73,000.

Question

Product L28N has been considered a drag on profits at Beets Corporation for some time and management is considering discontinuing the product altogether. 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 $41,000 of the fixed manufacturing expenses and $25,000 of the fixed selling and administrative expenses are avoidable if product L28N is discontinued. What would be the effect on the company's overall net operating income if product L28N were dropped?
A) Overall net operating income would decrease by $73,000. 
B) Overall net operating income would increase by $10,000. 
C) Overall net operating income would decrease by $10,000. 
D) Overall net operating income would increase by $73,000.

Quizplus · Accepted Answer

The Answer of Product L28N has been considered a drag on profits at Beets Corporation for some time and management is considering discontinuing the product altogether. 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 $41,000 of the fixed manufacturing expenses and $25,000 of the fixed selling and administrative expenses are avoidable if product L28N is discontinued. What would be the effect on the company's overall net operating income if product L28N were dropped?
A) Overall net operating income would decrease by $73,000. 
B) Overall net operating income would increase by $10,000. 
C) Overall net operating income would decrease by $10,000. 
D) Overall net operating income would increase by $73,000.

Product L28N Has Been Considered a Drag on Profits at Beets