The management of Kabanuck Corporation is considering dropping product V41B. 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 $184,000 of the fixed manufacturing expenses and $200,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

-According to the company's accounting system, what is the net operating income earned by product V41B? Include all costs in this calculation-whether relevant or not.
A)$71,000
B)$516,000
C)$(516,000)
D)$(71,000)

Question

The management of Kabanuck Corporation is considering dropping product V41B. 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 $184,000 of the fixed manufacturing expenses and $200,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

-According to the company's accounting system, what is the net operating income earned by product V41B? Include all costs in this calculation-whether relevant or not.
A)$71,000 
B)$516,000 
C)$(516,000) 
D)$(71,000)

Quizplus · Accepted Answer

Product V41B has a negative contribution margin of $71,000 ($400,000 - $471,000). Therefore, it is not generating any gross profit, and its net operating income is negative. The correct answer is D, which is $(71,000). Option A and B are incorrect because they both represent positive net operating incomes, which is not the case for Product V41B. Option C is incorrect because it represents the wrong sign for the net operating income.

The Management of Kabanuck Corporation Is Considering Dropping Product V41B