The management of Dorl Corporation has been concerned for some time with the financial performance of its product I54J and has considered discontinuing it on several occasions. 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 $95,000 of the fixed manufacturing expenses and $85,000 of the fixed selling and administrative expenses are avoidable if product I54J is discontinued.
-According to the company's accounting system, what is the net operating income earned by product I54J?
A) $14,000
B) ($357,000)
C) ($14,000)
D) $357,000

Question

The management of Dorl Corporation has been concerned for some time with the financial performance of its product I54J and has considered discontinuing it on several occasions. 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 $95,000 of the fixed manufacturing expenses and $85,000 of the fixed selling and administrative expenses are avoidable if product I54J is discontinued.
-According to the company's accounting system, what is the net operating income earned by product I54J?
A) $14,000 
B) ($357,000) 
C) ($14,000) 
D) $357,000

Quizplus · Accepted Answer

Based on the data provided, the net operating income earned by product I54J is ($14,000). This is calculated by subtracting the total variable expenses ($280,000) and fixed expenses allocated to the product ($91,000) from the product's total revenue ($385,000):

$385,000 - $280,000 - $91,000 = ($14,000)

This means that the product is generating negative net operating income, and discontinuing it would avoid $180,000 ($95,000 + $85,000) of fixed expenses, improving the overall profitability of the company.

The Management of Dorl Corporation Has Been Concerned for Some