The management of Kabanuck Corporation is considering dropping product V41B. Dat

Question

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $220,000 of the fixed manufacturing expenses and $131,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

According to the company's accounting system, what is the net operating income earned by product V41B? Include all costs in this calculation—whether relevant or not.

$521,000

$92,000

$(92,000)

$(521,000)

Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beets costs $52 to buy from farmers and $14 to crush in the company's plant. Two intermediate products, beet fiber and beet juice, emerge from the crushing process. The beet fiber can be sold as is for $28 or processed further for $20 to make the end product industrial fiber that is sold for $40. The beet juice can be sold as is for $48 or processed further for $32 to make the end product refined sugar that is sold for $74. How much profit (loss) does the company make by processing the intermediate product beet juice into refined sugar rather than selling it as is?

rev: 08_07_2013_QC_33489

$(6)

$(8)

$(60)

$(35)

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

Explanation / Answer

1. Solution:
Sales $939,000
Variable expenses - 418,000
----------------
Contribution margin 521,000

Fixed expenses:
Fixed manufacturing expenses 353,000
Fixed selling and administrative expenses 260,000
Total fixed expenses 613,000
----------------
Net operating income (loss) ( $ 92,000)

2. Total normal costs = 52 + 14 = $66
Total normal revenues 28 + 48 = $76
So if both the beet fiber and beet juice are not processed further they profit $10 per batch. However if the beet juice is processed further:
Total costs = 52 + 14 + 32 = 98
Total revenues 28 + 74 = 102
They will profit $4 per batch if the beet juice is processed further.

net profit = 10 -4 = $6...........Ans.

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