The management of Drummer Corporation is considering dropping product D84L. Data from the company’s accounting system appear below.
|
Sales |
$800,000 |
|
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.
Required:
What would be the effect on the company’s overall net operating income if product D84L were dropped? Should the product be dropped? Show your work!