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$55,000 of the fixed manufacturing expenses and $71,000 of the fixed
selling and administrative expenses are avoidable if product S85U is
discontinued.
Required:
i. According to the company's accounting system, what is the net
operating income earned by product S85U? Show your work!
ii. What would be the effect on the company's overall net operating
income of dropping product S85U? Should the product be dropped?
Show your work!
4.
Question :
(TCO D) Fouch Company makes 30,000 units per year of a part it uses
in the products it manufactures. The unit product cost of this part is
computed as follows.
Direct Materials
$15.70
Direct Labor
$17.50
Variable Manufacturing Overhead
$4.50
Fixed Manufacturing Overhead
$14.60
Unit Product Cost
$52.30
An outside supplier has offered to sell the company all of these parts it
needs for $51.90 a unit. If the company accepts this offer, the facilities
now being used to make the part could be used to make more units of a
product that is in high demand. The additional contribution margin on
this other product would be $219,000 per year.