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.

---

Definitions:

Contract

A legally binding agreement between two or more parties that is enforceable by law.

Payoff Profile

A graphical representation that shows the potential profit or loss of an investment option at various prices at expiration.

Gains And Losses

The financial results from the sale of assets or investments, where gains represent increased value and losses represent decreased value.

Unexpected Price Changes

Price movements that occur without prior indication or contrary to the predictions based on market or economic fundamentals.