Please help. Please show work to get credit. Overall net operating income would
ID: 2381769 • Letter: P
Question
Please help. Please show work to get credit.
Overall net operating income would decrease by $59,000. Overall net operating income would decrease by $22,000. Overall net operating income would increase by $59,000. Overall net operating income would increase by $22,000.
Product R19N has been considered a drag on profits at Buzzeo Corporation for some time and management is considering discontinuing the product altogether. Data from the company's accounting system appear below: In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $49,000 of the fixed manufacturing expenses and $30,000 of the fixed selling and administrative expenses are avoidable if product R19N is discontinued. What would be the effect on the company's overall net operating income if product R19N were dropped? Kempler Corporation processes sugar cane in batches. The company purchases a batch of sugar cane for $34 from farmers and then crushes the cane in the company's plant at the cost of $15. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $26 or processed further for $17 to make the end product industrial fiber that is sold for $41. The cane juice can be sold as is for $32 or processed further for $22 to make the end product molasses that is sold for $51. Which of the intermediate products should be processed further?
Explanation / Answer
1) They would save expenses of 211,000 (49,000 + 30,000 + 132000) but lose sales of 270,000.
Overall net operating income would decrease by $59,000.
2) Cane fiber: 41 - 26 - 17 = -2
Cane sugar: 51 - 32 - 22 = -3
CAne fiber will make $2 less if processed further. Cane sugar will make $3 less if processed further.
Answer: Neither should be processed further.
Cane fiber should NOT be processed into industrial fiber; Cane juice should NOT be processed into molasses