The management of Furrow Corporation is considering dropping product L07E. Data from the company's accounting system appear below:
Sales..................................... $830,000
Variable expenses.......................... $365,000
Fixed manufacturing expenses................... $291,000
Fixed selling and administrative expenses....... $166,000
In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $186,000 of the fixed manufacturing expenses and $106,000 of the fixed selling and administrative expenses are avoidable if product L07E is discontinued. What would be the effect on the company's overall net operating income if product L07E were dropped?
a) Overall net operating income would increase by $8,000.
b) Overall net operating income would decrease by $173,000.
c) Overall net operating income would decrease by $8,000.
d) Overall net operating income would increase by $173,000.