Answer:
The company would have a greater net operating income of $339,000 if the product H58S were dropped.
Explanation:
The net operating income can be expressed as;
a). If product H58S is not dropped
Net operating income=income from sales-Total expenses
where;
Income from sales=$920,000
Total expenses=Net fixed expenses+variable expenses
Fixed expenses=Fixed manufacturing expenses+Fixed selling and administrative expenses=(370,000+250,000)=$620,000
Variable expenses=$388,000
Total expenses=(620,000+388,000)
Total expenses=$1,008,000
Net operating income=(920,000-1,008,000)=-$88,000
b). If product H58S is dropped
Income from sales=$920,000
Total expenses=Net fixed expenses+variable expenses
Fixed expenses=Fixed manufacturing expenses+Fixed selling and administrative expenses=(370,000+250,000)=$620,000
Net fixed expenses=(620,000)-(233,000+194,000)
Net fixed expenses=$193,000
Variable expenses=$388,000
Total expenses=193,000+388,000= $581,000
Replacing;
Net operating income=(920,000-581,000)
Net operating income=$339,000
The company would have a greater net operating income of $339,000 if the product H58S were dropped.
