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What would be the company's overall net operating income if these data indicate that if Product A is dropped?
A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped.




This question is part of Management Accounting Exam 3: Chp 12, 13,14, 15
Asked by JThompson, Last updated: Jun 27, 2020

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K. Myers

K. Myers, Blogger, Chicago

Answered Aug 22, 2018

Numerous calculations are involved when determining the profit margin of a product. You need to calculate differences that allow you to find the total amount of profit for the month’s sale. In a particular example, the product total was dropped by $40000. When the total was estimated, the number of dollars that the company had in total profit was $10000.

This represented the drop when the difference between the value when keeping the product and the value when dropping the product was calculated. It is a good estimate to calculate the different aspects of the sales and ensure that the business is going in the right direction.

 

John Smith

John Smith

Answered May 10, 2017

Decrease by $10,000 per year
 

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