Exercise 10-15 Dropping or Retaining a Segment [LO10-2] Thalassines Kataskeves,

Question

Exercise 10-15 Dropping or Retaining a Segment [LO10-2]

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:

     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.

Compute the increase or decrease of net operating income if the product line is continued or discontinued. (Decreases should be indicated by a minus sign.)

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:

Explanation / Answer

a. Statement Showing Increase decrease in Net Operating income Keep Product Line Drop Product Line Difference: Net Operating Sales $850,000 $0 -$850,000 Variable expenses: Variable manufacturing expenses $330,000 $0 $330,000 Sales commissions $42,000 $0 $42,000 Shipping $18,000 $0 $18,000 Total variable expenses $390,000 $0 $390,000 Contribution margin $460,000 $0 -$460,000 Fixed expenses: Advertising $270,000 $0 $270,000 Depreciation of equipment $80,000 $80,000 $0 General factory overhead $105,000 $105,000 $0 Salary of product line manager $32,000 $0 $32,000 Insurance on inventories $8,000 $0 $8,000 Purchasing department $45,000 $45,000 $0 Total fixed expenses $540,000 $230,000 $310,000 Net operating Income (loss) -$80,000 -$230,000 -$150,000 b. No, the bilge pump product line should not be discontinued.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

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