Suire Corporation Is Considering Dropping Product D14E

question 421

Essay

Suire Corporation is considering dropping product D14E. 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 $72,000 of the fixed manufacturing expenses and $48,000 of the fixed selling and administrative expenses are avoidable if product D14E is discontinued.Required:a. According to the company's accounting system, what is the net operating income earned by product D14E?b. What would be the financial advantage (disadvantage) of dropping product D14E? Should the product be dropped?

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Definitions:

Advertising

The activity or profession of producing advertisements for commercial products or services.

Elastic Demand

A situation where the quantity demanded of a good or service significantly changes in response to a change in price.

Total Revenue

The total amount of money generated by the sale of goods or services, calculated as the unit price multiplied by the quantity sold.

Delicatessen

A store or section of a grocery store selling cured meats, cheese, and other specialty food items.