The management of Schmader Corporation is considering dropping product M12C. Data from the company's accounting system appear below:
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $137,000 of the fixed manufacturing expenses and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.
Required:
a. What is the net operating income earned by product M12C according to the company's accounting system? Show your work!
b. Determine the financial advantage (disadvantage) for the company of dropping product M12C. Should the product be dropped? Show your work!

Question

The management of Schmader Corporation is considering dropping product M12C. Data from the company's accounting system appear below:
  All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $137,000 of the fixed manufacturing expenses and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.
Required:
a. What is the net operating income earned by product M12C according to the company's accounting system? Show your work!
b. Determine the financial advantage (disadvantage) for the company of dropping product M12C. Should the product be dropped? Show your work!

Quizplus · Accepted Answer

The Answer of The management of Schmader Corporation is considering dropping product M12C. Data from the company's accounting system appear below:
  All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $137,000 of the fixed manufacturing expenses and $79,000 of the fixed selling and administrative expenses are avoidable if product M12C is discontinued.
Required:
a. What is the net operating income earned by product M12C according to the company's accounting system? Show your work!
b. Determine the financial advantage (disadvantage) for the company of dropping product M12C. Should the product be dropped? Show your work!

The Management of Schmader Corporation Is Considering Dropping Product M12C