Please Show All Work Mr. Earl Pearl, accountant for Margie Knall, Inc. has prepa
ID: 2415979 • Letter: P
Question
Please Show All Work
Mr. Earl Pearl, accountant for Margie Knall, Inc. has prepared the following product-line income data.
PRODUCT
Total A B C
Sales................................................$ 100,000........$50,000.........$20,000...........$30,000
Variable expenses.............................. 60,000..........30,000............10,000.............20,000
Contribution margin............................. .40,000..........20,000............10,000.............10,000
Fixed expenses:
Rent................................................. .5,000...........2,500..............1,000...............1,500
Depreciation..................................... 6,000...........3,000..............1,200................1,800
Utilities.............................................4,000...........2,000.................500................1,500
Supervisors' salaries....................... 5,000.......... 1,500.................500................3,000
Maintenance....................................3,000...........1,500..................600..................900
Administrative expenses................ 10,000...........3,000.................2,000..............5,000
Total fixed expenses........................ 33,000..........13,500...............5,800.............13,700
Net operating income........................ $7,000..........$6,500.............$4,200............($3,700)
The additional information below is available.
o The factory rent of $1,500 assigned to Product C is avoidable if the product is dropped.
o The company's total depreciation would not be affected by dropping Product C.
o Eliminating Product C will reduce the total monthly utility bill from $4,000 to $3,000.
o All supervisory salaries for Product C would be avoidable.
o If Product C is discontinued, the maintenance department will be able to reduce total monthly expenses from $3,000 to $2,200.
o Elimination of Product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,500.
Required: Prepare an analysis showing whether Product C should be eliminated. Provide numerical support for your findings. (Points : 30)
Explanation / Answer
Solution-
The Product C not dropped because the disadvantage of dropping Product C is $1,700.
Lost contribution margin $10,000 Less: Fixed expense avoided Rent $1,500 Utilities $1,000 ($4,000 -$3,000) Spervisor's Salary $2,500 Maintenance $800 ($3,000 -$2,200) Administrative expense $2,500 $8,300 Disadvantage in dropping in Product C $(1,700)Related Questions
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