Freshwater Corporation: calculate overall net operating income

Question

The management of Freshwater Corporation is considering dropping product C11B. Data from the company's accounting system appear below:

 

Sales

$921,000

Variable expenses

$404,500

Fixed manufacturing expenses

$335,000

Fixed selling and administrative expenses

$242,000

 

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $206,500 of the fixed manufacturing expenses and $117,500 of the fixed selling and administrative expenses are avoidable if product C11B is discontinued. 

 

What would be the effect on the company's overall net operating income if product C11B were dropped? 

 

a. Overall net operating income would decrease by $192,500

b. Overall net operating income would increase by $60,500

c. Overall net operating income would decrease by $60,500

d. Overall net operating income would increase by $192,500

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