Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the followin

Question

Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:

Product

The following additional information is available:

The factory rent of $1,580 assigned to Product C is avoidable if the product were dropped.

The company's total depreciation would not be affected by dropping C.

Eliminating Product C will reduce the monthly utility bill from $2,300 to $880.

All supervisors' salaries are avoidable.

If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,960 to $2,800.

Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,800.

Required:

Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

The net disadvantage would be 9080 - 5640 = 3440

Part B:

No.

Thanks.

With C Without C
Total Total Sales 116000 80000 Variable expenses 62400 41600 Contribution margin 53600 38400 Fixed expenses:

Rent 7400 5820 Depreciation 8400 8400 Supervisor's Salary 6680 2880 Utilities 5680 4260 Maintenance 3960 2800 Administrative expenses 12400 8600 Total Fixed expenses 44520 32760 Net operating income 9080 5640

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