Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has

Question

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassines Kataskeves, S.A Income Statement-Bilge Pump Sales Variable expenses: 460,00 Variable manufacturing expenses Sales commissions Shipping 131,000 48,000 14,000 Total variable expenses Contribution margin Fixed expenses: 193,000 267,000 25,000 102,000 Advertising (for the bilge pump product line) Depreciation of equipment (no resale value) General factory overheacd Salary of product-line manager Insurance on inventories 49,000 119,000 11,000 50,000 Purchasing departnent Total fixed expenses Net operating loss 356,000 $ (89,000) Common costs allocated on the basis of machine-hours tCommon costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses. Required What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

Explanation / Answer

In case of discontinuance , there will be no sales revenue ,variable cost or contribution cost .since fixed cost remain constant whether the line is continued or not (unless avoidable ) thus irrelevant.

Advertising ,salary of product line manager and insurance on inventories is avoidable fixed cost since they are directly traceable to product line .

Depreciation and allocated cost will continue to be incurred whether product line is continued or not

Fixed cost that continued to be incurred : 102000+49000+50000=201000

net loss from discontinuance of product line : -201000

Financial disadvantage from discontinuing the product line:201000-89000= 112000  

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.