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IOP company is thinking about dropping product X. The following is related data: Sales $ 600,000 Variable expenses $241,000 Fixed manufacturing expenses $ 232,000 Fixed selling and administrative expenses $180,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $192,500 of the fixed manufacturing expenses and $107,500 of the fixed selling and administrative expenses are avoidable if product X is discontinued.

IOP company is thinking about dropping product X. The following is related data: Sales $ 600,000 Variable expenses $241,000 Fixed manufacturing expenses $ 232,000 Fixed selling and administrative expenses $180,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $192,500 of the fixed manufacturing expenses and $107,500 of the fixed selling and administrative expenses are avoidable if product X is discontinued.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 6 IOP company is thinking about dropping product X. The following is related data: Sales $ 600,000 Variable expenses $241,000 Fixed manufacturing expenses $ 232,000 Fixed selling and administrative expenses $ 180,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $192,500 of the fixed manufacturing expenses and $107,500 of the fixed selling and administrative expenses are avoidable if product X is discontinued. Required: 1. What is the net operating income earned by product X? Show your calculations. 2. What would be the financial advantage or disadvantage of dropping product X? Should the product be dropped? Show your analysis.
Transcribed Image Text:Question 6 IOP company is thinking about dropping product X. The following is related data: Sales $ 600,000 Variable expenses $241,000 Fixed manufacturing expenses $ 232,000 Fixed selling and administrative expenses $ 180,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $192,500 of the fixed manufacturing expenses and $107,500 of the fixed selling and administrative expenses are avoidable if product X is discontinued. Required: 1. What is the net operating income earned by product X? Show your calculations. 2. What would be the financial advantage or disadvantage of dropping product X? Should the product be dropped? Show your analysis.
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