https//newconnect.mhedu k#90 Case 14-62 Drop a Product Line (LO 14-4, 14-5) Onta
ID: 2510265 • Letter: H
Question
https//newconnect.mhedu k#90 Case 14-62 Drop a Product Line (LO 14-4, 14-5) Ontario Pump Company, a small manufacturing company in Toronto, Ontario, many years the manufactures three types of pumps used in a variety of applications. For company has been profitable and has operated at capacity. However, in the last two years prices on all pumps were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the ed current year, which follow, typity recent experience ONTARIO PUMP COMPANY Income Statement Second Quarter (in thousands) R-Pump F-Pump S-Pump Total Sales Cost of goods sold $5.676 $3,498 $3,360 $12.534 3718 2.993 3,546 10.257 Gross margin Selling and administrative expenses $1958 505 (186) $ 2.277 1.313 719 504 2.536 income before taxes s 645 S (214) $ (690) (259) ?Prey 90, 10 Next> 6 7 8 9 0Explanation / Answer
2.
The above figures for segment contribution after proposal have been calculated as below:
b-1
Contribution margin for S pump
b-2
Yes, the president was correct in proposing that the S pump line be discontinued becuase the total income has improved as a result of this.
c-1
c-2 Yes, the president was correct in promoting R pump line rather than F pump becuase it has a higher contribution margin per unit and the total profit has increased as a result.
R pump F pump S pump Segment contribution before proposal $6,45,000 -$2,14,000 -$6,90,000 Segment contribution after proposal $8,45,616 -$7,12,008 0 Increase/decrease $2,00,616 -$4,98,008 $6,90,000Related Questions
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