The Management of Drummer Corporation Is Considering Dropping Product D84L

question 14

Essay

The management of Drummer Corporation is considering dropping product D84L. 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 $201,000 of the fixed manufacturing expenses and $156,000 of the fixed selling and administrative expenses are avoidable if product D84L is discontinued.
Required:
What would be the effect on the company's overall net operating income if product D84L were dropped? Should the product be dropped? Show your work!

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Definitions:

Independent Variables

Variables in an experiment or model that are manipulated or categorized to determine their effect on dependent variables.

Determination

Generally refers to the process of firm decision-making or the resolving of a problem; in statistics, it may refer to the coefficient of determination.

SSR

Sum of Squared Residuals; a measure of the discrepancy between the data and an estimation model.

F Statistic

The F statistic is a value derived from an ANOVA test used to determine whether the means of several groups are equal by comparing the variance between groups to the variance within groups.