The management of Thews Corporation is considering dropping product E28I.

The
management of Thews Corporation is considering dropping product E28I. Data from
the company’s accounting system appear below.
Sales $480,000
Variable
Expenses $202,000
Fixed
Manufacturing Expenses $158,000
Fixed
Selling and Administrative Expenses $130,000

All
fixed expenses of the company are fully allocated to products in the company’s
accounting system. Further investigation has revealed that $86,000 of the fixed
manufacturing expenses and $67,000 of the fixed selling and administrative
expenses are avoidable if product E28I is discontinued.

Required:

i. What is the net operating income earned by product E28I according to the
company’s accounting system? Show your work!

ii. What would be the effect on the company’s overall net operating income of
dropping product E28I? Should the product be dropped? Show your work! (Points :
15)

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