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 monthly product-line income data:

he following additional information is available:

The factory rent of $4,500 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 electricity bill from $4,500 to $2,400. The electricity bill is included in utilities expenses.

All supervisors’ salaries are avoidable.

If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $9,000 to $6,000.

Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $9,000.

Required:

Would you recommend the company discontinue Product C. Provide any analysis to determine your answer.

-- For any calculations, all work must be shown in order to receive full credit.

Explanation / Answer

With C overall profit of Company is 21000 ,without C overall profit is 18600 there is a decline in overall profit by 2400 hence it is recommended not to discontinue C

Contribution margin 120000 90000 Fixed expenses: Rent 15000 10500 Depreciation 18000 18000 Utilities 12000 9900 Supervisors' salaries 15000 6000 Maintenance 9000 6000 Administrative expenses 30000 21000 Total Fixed Expense 99000 71400 Net operating income 21000 18600

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