The management of Thews Corporation is thinking of dropping product E28I. Data from company's accounting system given below:
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.
Sales .........$ 480,000
Variable expenses.....$ 202,000
Fixed manufacturing expenses.....$ 158,000
Fixed selling and administrative expenses... $ 130,000
a) Determine net operating income earned by product E28I according to company's accounting system?
b) Find effect on company's overall net operating income of dropping product E28I? Should product be dropped?