Product R19N Has Been Considered a Drag on Profits at Buzzeo

question 3

Multiple Choice

Product R19N has been considered a drag on profits at Buzzeo 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 $49,000 of the fixed manufacturing expenses and $30,000 of the fixed selling and administrative expenses are avoidable if product R19N is discontinued. What would be the effect on the company's overall net operating income if product R19N were dropped?

• A)Overall net operating income would decrease by $59,000.
• B)Overall net operating income would decrease by $22,000.
• C)Overall net operating income would increase by $59,000.
• D)Overall net operating income would increase by $22,000.

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Definitions:

R&D

Stands for Research and Development; activities companies undertake to innovate and introduce new products or processes.

Patentable

Capable of being protected by a patent, which grants the holder exclusive rights to an invention or process for a certain period.

Imitation

The action of using someone or something as a model and attempting to replicate their behavior, strategy, or design.

R&D Expenditures

Financial investments made in the research and development sector, aimed at fostering innovation, creating new products, improving existing products, or discovering new technologies.