Please show all work, thank you! Mr. Earl Pearl, accountant for Margie Knall Co.
ID: 2478738 • Letter: P
Question
Please show all work, thank you!
Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data: The following additional information is available: The factory rent of $1,500 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 utility bill from $1,500 to $800. All supervisors' salaries are avoidable. If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000. Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,000. Required: Prepare an analysis showing whether Product C should be eliminated.Explanation / Answer
For this analysis we will consider only those costs that will be affected due to non-existence of product C:
Description
Amount
Sales
30000
Variable cost
-20000
Contribution margin
10000
Decrease in Rent
-1500
Decrease in utility bills
-700
Decrease in supervisor's salary
-3000
Reduction in maintenance expenses
-1000
Reduction in salary of admin staff
-3000
Net contribution by C
800
Since there is a positive net contribution by C, product C should not be eliminated.
Description
Amount
Sales
30000
Variable cost
-20000
Contribution margin
10000
Decrease in Rent
-1500
Decrease in utility bills
-700
Decrease in supervisor's salary
-3000
Reduction in maintenance expenses
-1000
Reduction in salary of admin staff
-3000
Net contribution by C
800
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