Reference no: EM132596225

The following additional data have been supplied by the company:

a. Direct labour is a variable cost at Heritage Garden Furniture.

b. All of the company's products are manufactured in the same facility and use the same equipment. Building rent, maintenance, and depreciation are allocated to products using various bases. The equipment does not wear out through use; it eventually becomes obsolete.

c. There is ample capacity to fill all orders.

d. Dropping the model C3 lawn chair would have no effect on sales of other product lines.

e. Inventories of work in process or finished goods are insignificant.

f. Shipping costs are traced directly to products.

g. General administrative expenses are allocated to products on the basis of sales dollars. There would be no effect on the total general administrative expenses if the model C3 lawn chair were dropped.

h. If the model C3 lawn chair were dropped, the product manager would be laid off.

Required:

Question 1: At current level of sales, compute the effect of net operating income if the Model C3 lawn chair is dropped