Corporation is considering dropping product XRAY. Data from the company's accounting system appear below: Sales $800,000 Variable Expenses $440,000 Fixed Manufacturing $248,000 Fixed Selling & Administration $184,000 All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $201,000 of the fixed manufacturing expenses and $156,000 of the fixed selling and administrative expenses are avoidable if product XRAY is discontinued.
What would be the effect on the company's overall net operating income if product XRAY were dropped?
Should the product be dropped or kept? Why?
Under what circumstances would you retain a product even if the numbers indicate you should cut it?