Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the followin
ID: 2373728 • Letter: M
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 $1,590 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 $2,400 to $890.
All supervisors' salaries are avoidable.
If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $4,080 to $2,900.
Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,900.
Required:
Product
Total A B C Sales $ 117,000 $ 51,000 $ 29,000 $ 37,000 Variable expenses 62,700 30,900 10,900 20,900 Contribution margin 54,300 20,100 18,100 16,100 Fixed expenses: Rent 7,700 3,400 1,900 2,400 Depreciation 8,700 3,900 2,100 2,700 Utilities 5,890 2,900 590 2,400 Supervisors' salaries 6,890 2,400 590 3,900 Maintenance 4,080 2,400 690 990 Administrative expenses 12,700 3,900 2,900 5,900 Total fixed expenses 45,960 18,900 8,770 18,290 Net operating income $ 8,340 $ 1,200 $ 9,330 $ (2,190)Explanation / Answer
Hi,
Please find the answer as follows:
Part A:
The net disadvantage from producing C would be = 8340 - 4320 = 4020
Part B:
No, C should not be dropped.
Thanks.
With C Without C
Total Total Sales 117000 80000 Variable expenses 62700 41800 Contribution margin 54300 38200 Fixed expenses:
Rent 7700 6110 Depreciation 8700 8700 Supervisor's Salary 6890 2990 Utilities 5890 4380 Maintenance 4080 2900 Administrative expenses 12700 8800 Total Fixed expenses 45960 33880 Net operating income 8340 4320
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