The Management of Therriault Corporation Is Considering Dropping Product U51Y

question 34

Essay

The management of Therriault Corporation is considering dropping product U51Y. 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 $280,000 of the fixed manufacturing expenses and $140,000 of the fixed selling and administrative expenses are avoidable if product U51Y is discontinued.
Required:
What would be the effect on the company's overall net operating income if product U51Y were dropped? Should the product be dropped? Show your work!

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Definitions:

Standard-Setting

The process of establishing norms or regulations that dictate the quality and safety of products, services, or systems within an industry.

Political Considerations

These refer to the impact that politics and government policy can have on economic issues, investments, and the overall business environment.

Economic Performance Approach

An accounting method where income and expenses are recorded when the service is provided or consumed, rather than when payment is made.

Commercial and Tax Law Approach

The study of laws related to commercial transactions and taxation, focusing on how they influence business operations and financial practices.