10. Chappy manufactures two lines of slacks: Plain and Upscale. Last year, the P

Question

10. Chappy manufactures two lines of slacks: Plain and Upscale. Last year, the Plain line sold 25,000 slacks and the Upscale sold 32,000 slacks. Chappy is considering to eliminate the Plain line based on the financial statement listed below: Plain Upscale Sales $300,000 $900,000 Less: COGS Unit level 200,000 320,000 Deprecation production 80,000 120000 equipment Gross Margin 20,000 460,000 Less: operating expenses: Unit level SG&A; 17,000 130,000 40,000 $290.000 Corporate (facility level 13.000 Net income (loss) I Should Chappy eliminate the Plain slacks line? Explain your answer:

Explanation / Answer

Chappy should not eliminate plain slacks line

If continued we have a loss of 10000 and gain of 290000 thus the total organisational income = 280000

If discontinued such overall net income shall be 290000 - 13000 unabsorbed corporate level expenses = 277000

Thus such decision shall result in additional loss of 3000

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