Veblen Company manufactures a variety of athletic shoes: basketball, running, an
ID: 2454067 • Letter: V
Question
Veblen Company manufactures a variety of athletic shoes: basketball, running, and tennis. Sales of the tennis shoes have fallen off. Veblen is considering several options: drop the tennis shoe line; replace the tennis shoe line with golf shoes; retool the tennis shoe line to make "Airtennies." Price and cost data are as follows: If the tennis shoe line is dropped, the $50,000 fixed cost is totally avoidable. Use the minus sign to enter operating loss. Calculate the impact on operating income, using relevant amounts only, for keeping the tennis shoe line. Calculate the impact on operating income, using relevant amounts only, for option 1. Calculate the impact on operating income, using relevant amounts only, for option 2. Calculate the impact on operating income, using relevant amounts only, for option 3.Explanation / Answer
Solution:
A.
There will be a loss of $ 37,500 based on relevant costs, if the firm decides to keep the Tennis line.
B.
There will be a saving of $ 37,500 if the firm decided to drop tennis line.
C.
The profit will increase by $ 42,500, if the firm decided to replace tennis line with the golf line.
D.
The profit will increase by $ 37,500.
Sale Revenue from Tennis 100,000 Less: Variable Cost 87,500 Less: Fixed Cost 50,000 Profit or Loss - 37,500Related Questions
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