Reference no: EM133094960

Question - Kingcade Corporation makes and sells two products: A23 and B17. Kingcade has the annual capacity to make 10,000 units of each product. Currently, the company plans to make and sell 6,500 units of A23 and 6,800 units of B17 in 2022. A marketing executive proposes to eliminate the entire B17 product line; the executive estimates that if this is done, sales of A23 will increase by 1,600 units per year.

Unit costs and selling price estimates for 2022 are below:

Note: Fixed overhead (FOH) allocations per unit are done using "textbook" absorption costing allocation techniques. Kingcade separates its FOH costs into two categories:

1. Product fixed overhead. Estimated annual total product fixed overhead costs equal $227,500 for product line A23 and $224,400 for product line B17; these include each product line's product-line specific FOH costs that would be avoided if the product line is discontinued.

2. Corporate fixed overhead. Estimated annual total corporate fixed overhead costs equal $201,500 for product line A23 and $149,600 for product line B17; these include corporate-level FOH costs that are not avoidable if a product line is discontinued.

If Kingcade Corporation eliminates the entire B17 product line to increase unit sales of A23s by 1,600 units per year, determine the change in the company's NOI?

A. $249,200 decrease

B. $199,600 increase

C. $24,800 decrease

D. $74,400 decrease

E. $19,200 increase