Chappy manufactures two lines of pants: Stripe and Plaid. Last year, the Stripe
ID: 2546492 • Letter: C
Question
Chappy manufactures two lines of pants: Stripe and Plaid. Last year, the Stripe line sold 25,000 and the Plaid sold 32,000. Chappy is considering to eliminate the Stripe line based on the financial statement listed below:
Stripe
Plaid
Sales
$400,000
$900,000
Less: COGS
Unit level
220,000
320,000
Deprecation production equipment
80,000
120,000
Gross Margin
100,000
460,000
Less: operating expenses:
Unit level SG&A
80,000
130,000
Corporate (facility level fixed cost)
60,000
60,000
Net income (loss)
$(40,000)
$270,000
Should Chappy eliminate the Stripe slacks line? _______________________
Explain your answer
Stripe
Plaid
Sales
$400,000
$900,000
Less: COGS
Unit level
220,000
320,000
Deprecation production equipment
80,000
120,000
Gross Margin
100,000
460,000
Less: operating expenses:
Unit level SG&A
80,000
130,000
Corporate (facility level fixed cost)
60,000
60,000
Net income (loss)
$(40,000)
$270,000
Explanation / Answer
NO.
Chappy should not eliminate the Stripe slacks line because it has a segment margin of $20000 that it is contributing towards the corporate fixed costs.
Total Stripe Plaid Sales 1300000 400000 900000 Less: Cost of goods sold 540000 220000 320000 Contribution margin 760000 180000 580000 Traceable fixed expenses: Depreciation production equipment 200000 80000 120000 SG & A expenses 210000 80000 130000 Total traceable fixed expenses 410000 160000 250000 Segment margin 350000 20000 330000 Corporate fixed expenses 120000 Net income (loss) 230000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.