Based on the segment income statement below, Gourmet Sorbet is considering elimi

Question

Based on the segment income statement below, Gourmet Sorbet is considering eliminating its Mango Tango line.

Revenue from Mango Tango sales

$500,000

Salaries for Mango Tango workers

(120,000)

Direct material costs for Mango Tango

(300,000)

Sunk costs (equipment depreciation)

(75,000)

Allocated company-wide facility-sustaining costs

(50,000)

Net loss

$ (45,000)

1.     The total relevant costs in this decision add up to

a.     $400,000.

b.     $475,000.

c.     $525,000.

d.     $420,000.

2.     If Mango Tango were eliminated, profitability would

a.     increase $25,000.

b.     increase $525,000.

c.     decrease $80,000.

d.     decrease $100,000.

Please show the necessary calculations, thanks!

Revenue from Mango Tango sales

$500,000

Salaries for Mango Tango workers

(120,000)

Direct material costs for Mango Tango

(300,000)

Sunk costs (equipment depreciation)

(75,000)

Allocated company-wide facility-sustaining costs

(50,000)

Net loss

$ (45,000)

Explanation / Answer

1. total relevant costs in this decision = 120000+300000= 420000

d.     $420,000.

2. Cost if Mango tree is eliminated = 75000+50000 = 125,000

Change in profitability = -125000-(-45000)= -80,000

c.     decrease $80,000.

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