Answer:
$186,500 decrease
Explanation:
The computation of the effect in case when the product V41B is dropped is shown below:
We need to compare the cost between the current profits and the fixed cost incurred which is
Current profits = Sales - Variable costs - Fixed manufacturing expenses - Fixed selling and administrative expenses
= $933,000 - $410,500 - $522,500 - $347,000
= ($347,000)
Now fixed costs incurred is
= ($522,500 - $212,500) + ($347,000 - $123,500)
= $310,000 + $223,500
= $533,500
Since the fixed cost is more than the current profits, so the net operating income would be decreased by
= $533,500 - $347,000
= $186,500