The management of Drummer Corporation is considering dropping product D84L. Data from the company’s accounting system appear below.
Variable Expenses $440,000
Fixed Manufacturing Expenses $248,000
Fixed Selling and Administrative Expenses $184,000
All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $201,000 of the fixed manufacturing expenses and $156,000 of the fixed selling and administrative expenses are avoidable if product D84L is discontinued.
What would be the effect on the company’s overall net operating income if product D84L were dropped? Should the product be dropped?