The Nut House sells three different types of nuts. The results of the current year are as follows: All of the allocated costs will continue even if a division is discontinued. The Nut House allocates remaining fixed costs based on the number of units to be sold. Since Brazil nuts product line experienced a net loss, the Nut House feels that it should be discontinued. The Nut House feels that if this product line is dropped, that sales of the Peanuts and Walnuts will stay the same.
a. Determine the effect on operating income if the Nut House drops the Brazil nuts product line.
b. Should Nut House drop the Brazil nuts product line? Briefly indicate why or why not.

Question

The Nut House sells three different types of nuts. The results of the current year are as follows:  All of the allocated costs will continue even if a division is discontinued. The Nut House allocates remaining fixed costs based on the number of units to be sold. Since Brazil nuts product line experienced a net loss, the Nut House feels that it should be discontinued. The Nut House feels that if this product line is dropped, that sales of the Peanuts and Walnuts will stay the same. 
a. Determine the effect on operating income if the Nut House drops the Brazil nuts product line.
b. Should Nut House drop the Brazil nuts product line? Briefly indicate why or why not.

Quizplus · Accepted Answer

The Answer of The Nut House sells three different types of nuts. The results of the current year are as follows:  All of the allocated costs will continue even if a division is discontinued. The Nut House allocates remaining fixed costs based on the number of units to be sold. Since Brazil nuts product line experienced a net loss, the Nut House feels that it should be discontinued. The Nut House feels that if this product line is dropped, that sales of the Peanuts and Walnuts will stay the same. 
a. Determine the effect on operating income if the Nut House drops the Brazil nuts product line.
b. Should Nut House drop the Brazil nuts product line? Briefly indicate why or why not.

The Nut House Sells Three Different Types of Nuts