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.
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.