The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:
| Sales |
$917,000 |
| Variable expenses |
$402,500 |
| Fixed manufacturing expenses |
$331,000 |
| Fixed selling and administrative expenses |
$238,000 |
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All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $204,500 of the fixed manufacturing expenses and $115,500 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued.
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What would be the effect on the company's overall net operating income if product C11B were dropped?
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Overall net operating income would increase by $54,500. |
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Overall net operating income would decrease by $194,500. |
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Overall net operating income would increase by $194,500. |
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Overall net operating income would decrease by $54,500. |