Product Q77H has been considered a drag on profits at Zenke Corporation for some time and management is considering discontinuing the product altogether.Data from the company's accounting system appear below:
In the company's accounting system all fixed expenses of the company are fully allocated to products.Further investigation has revealed that $71,000 of the fixed manufacturing expenses and $43,000 of the fixed selling and administrative expenses are avoidable if product Q77H is discontinued.What would be the effect on the company's overall net operating income if product Q77H were dropped?
A)Overall net operating income would decrease by $95,000.
B)Overall net operating income would increase by $95,000.
C)Overall net operating income would increase by $4,000.
D)Overall net operating income would decrease by $4,000.

Question

Quizplus · Accepted Answer

11eaa3fe_3435_e79e_908b_838c9f845932_TB2461_00 The segment margin of $95,000 would be lost if product Q77H were dropped and net operating income would decrease by $95,000.Therefore,the product should not be dropped.Another way of saying this is that the company is actually currently making $95,000 on this product.

Product Q77H Has Been Considered a Drag on Profits at Zenke