The management of Rodarmel Corporation is considering dropping product G91Q. Data from the company’s accounting system appear below:

Sales $ 370,000
Variable expenses $ 170,000
Fixed manufacturing expenses $ 118,000
Fixed selling and administrative expenses $ 89,000

All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $57,000 of the fixed manufacturing expenses and $40,000 of the fixed selling and administrative expenses are avoidable if product G91Q is discontinued.


What is the net operating income(loss) earned by product G91Q according to the company’s accounting system (Input the amount as a positive value.)

(Click to select)Net operating incomeNet operating loss $


What would be the effect on the company’s overall net operating income of dropping product G91Q?(Input the amount as a positive value.)

Net operating income
(Click to select)decreasedincreased



b2. Should the product be dropped?


Problem 2

Rothery Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has
the capacity to produce 18,000 medals each month; current monthly production is 17,100 medals. The company
normally charges $88 per medal. Cost data for the current level of production are shown below:

The company has just received a special one-time order for 600 medals at $73 each. For this particular order, no
variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.
Required: Should the company accept this special order? Why?