The Management of Leinberger Corporation Is Considering Dropping Product S48J

question 34

Essay

The management of Leinberger Corporation is considering dropping product S48J. 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 $28,000 of the fixed manufacturing expenses and $21,000 of the fixed selling and administrative expenses are avoidable if product S48J is discontinued.
Required:
What would be the effect on the company's overall net operating income if product S48J were dropped? Should the product be dropped? Show your work!

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Definitions:

Primary

Refers to first in order, importance, or original sources of information obtained directly from first-hand experience or research.

Economies of Scope

Cost advantages that a business experiences by producing a wider variety of products, rather than specializing in the production or provision of a single product or service.

Diseconomies of Scale

A point at which a company grows so large that the costs per unit increase with the increase in production.

Experience Curve Effects

The reduction in unit costs of production as output increases, typically due to gained efficiencies and learning over time.