Answer and Explanation:
a. The computation of the net operating income earned is shown below:
Sales $800,000
Less: Variable cost -$381,000
Contribution margin $419,000
Less: Fixed manufacturing expenses - $263,000
Less : Fixed selling and administrative expenses - $211,000
Net operating income or (Loss) -$55,000
b. The computation of the financial advantage (disadvantage) of dropping product D14E is shown below:
Sales $800,000
Less: Variable cost -$381,000
Contribution margin $419,000
Less: Fixed manufacturing expenses - $202,500
Less : Fixed selling and administrative expenses - $117,500
Financial disadvantage -$99,000
Since there is a financial disadvantage so the product should not be dropped
We simply applied the above equation
