) A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company's overall net operating income would: 6) A) decrease by $10,000 per year. B) increase by $30,000 per year. C) increase by $20,000 per year. D) decrease by $20,000 per year.

A) decrease by $10,000 per year.

Explanation:

To make a decision whether or not to drop a product, the following relevant cash flows will be important:

Contribution = Sales - Variable cost

Contribution =  200,000 - 140,000

                     = $60,000

Savings in specific fixed cost =  90000- 40000

                                                  = $50,000

Net position (decrease in operating income)

= 60,000 - 50000

= $10,000                                                                      

A) decrease by $10,000 per year.

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