Need help on the last question Delta Aluminum’s management is considering elimin

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Need help on the last question

Delta Aluminum’s management is considering eliminating product B, which has been showing a loss for several years. The company’s annual income statement is as follows:

Restate the income statement in segment margin format.

Management is considering making a new product using product B’s equipment. If the new product’s selling price per unit were $10, its variable costs were $5, and its advertising costs were the same as for product B, how many units of the new product would the company have to sell to make the switch from product B to the new product worthwhile?

Need help on the last question

Delta Aluminum’s management is considering eliminating product B, which has been showing a loss for several years. The company’s annual income statement is as follows:

A B C Total Sales $2,219,000 $1,410,000 $1,800,300 $5,429,300 Variable expenses 1,470,000 800,500 1,099,600 3,370,100 Contribution margin $749,000 $609,500 $700,700 $2,059,200 Advertising expense $625,000 $527,000 $522,000 $1,674,000 Depreciation expense 17,600 10,500 20,800 48,900 Corporate expenses 81,700 84,000 106,800 272,500 Total fixed expenses $724,300 $621,500 $649,600 $1,995,400 Operating income $24,700 $-12,000 $51,100 $63,800
Advertising expense - Specific to each product.
Depreciation expense - Specific to each product; no other use available, no resale value.
Corporate expenses - Allocated based on number of employees.

Explanation / Answer

Segment margin income statement after Introduction of New Product A New Product C Total Sales $2,219,000 $1,243,000 $1,800,300 $5,262,300 Variable expenses 1,470,000 621,500 1,099,600 $3,191,100 Contribution margin $749,000 $621,500 $700,700 $2,071,200 Advertising expense $625,000 $527,000 $522,000 $1,674,000 Depreciation expense 17,600 10,500 20,800 $48,900 Corporate expenses 81,700 84,000 106,800 $272,500 Total fixed expenses $724,300 $621,500 $649,600 $1,995,400 Operating income $24,700 $0 $51,100 $75,800 New Product selling Price 10 Variable cost 5 Contribution per unit 5 Total fixed expenses 621500 Break even level in Units fixed expenses/contribution margin per unit 124300

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