Knitline Inc. produces high-end sweaters and jackets in a single factory. The fo
ID: 2484277 • Letter: K
Question
Knitline Inc. produces high-end sweaters and jackets in a single factory. The following information was provided for the coming year.
Sweaters
Jackets
A sales commission of 5% of sales is paid for each of the two product lines. Direct fixed selling and administrative expense was estimated to be $19,000 for the sweater line and $49,400 for the jacket line.
Common fixed overhead for the factory was estimated to be $44,100. Common selling and administrative expense was estimated to be $12,900.
Required:
1
2.
Suppose that next year, all revenues and costs are expected to remain the same except for direct fixed overhead expense, which will go up by $13,625 for one of the product lines due to costs related to new equipment. Does it matter which line (sweaters or jackets) requires the new equipment? Why?
Complete the statements below that outline the impact of the overhead expense increase. If an amount is negative, first enter a minus sign (-).
Sweaters
Jackets
Sales $ 211,500 $ 451,200 Variable cost of goods sold 144,700 195,100 Direct fixed overhead 24,100 49,600Explanation / Answer
Answer 1. Knitline Inc. Segmented Income Statement For the Coming Year Sweaters Jackets Total Sales 211,500 451,200 662,700 Less: Variable Expenses Variable Cost of Goods Sold (144,700) (195,100) (339,800) Variable Selling Expenses (10,575) (22,560) (33,135) Contribution Margin 56,225 233,540 289,765 Less: Direct Fixed Expenses Direct Fixed Overhead (24,100) (49,600) (73,700) Direct Selling & Admn. Exp. (19,000) (49,400) (68,400) Segment Margin 13,125 134,540 147,665 Less: Common Fixed Expenses Common Fixed Expenses (44,100) Common Selling & Admn. Exp. (12,900) Operating Income 90,665 Answer 2. If new Equipment is used in Sweater Deparment. If, the New Equipment is required for Sweaters section, then the Segment Margin of the Sweater will be negative and probably the Sweater Lin to be Dropped as shown below: Knitline Inc. Segmented Income Statement For the Coming Year Sweaters Jackets Total Sales 211,500 451,200 662,700 Less: Variable Expenses Variable Cost of Goods Sold (144,700) (195,100) (339,800) Variable Selling Expenses (10,575) (22,560) (33,135) Contribution Margin 56,225 233,540 289,765 Less: Direct Fixed Expenses Direct Fixed Overhead (37,725) (49,600) (87,325) Direct Selling & Admn. Exp. (19,000) (49,400) (68,400) Segment Margin (500) 134,540 134,040 Less: Common Fixed Expenses Common Fixed Expenses (44,100) Common Selling & Admn. Exp. (12,900) Operating Income 77,040 If new Equipment is used in Jacket Deparment. If, the New Equipment is required for Jacket section, then it will be increase the sales or the Sales to be constant for the coming years . So, the machine should be used in Jacket department. The impact on profit is shown below: If new Equipment is used in Jacket Deparment. Knitline Inc. Segmented Income Statement For the Coming Year Sweaters Jackets Total Sales 211,500 451,200 662,700 Less: Variable Expenses Variable Cost of Goods Sold (144,700) (195,100) (339,800) Variable Selling Expenses (10,575) (22,560) (33,135) Contribution Margin 56,225 233,540 289,765 Less: Direct Fixed Expenses Direct Fixed Overhead (24,100) (63,225) (87,325) Direct Selling & Admn. Exp. (19,000) (49,400) (68,400) Segment Margin 13,125 120,915 134,040 Less: Common Fixed Expenses Common Fixed Expenses (44,100) Common Selling & Admn. Exp. (12,900) Operating Income 77,040
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.