Williams Products Inc. manufactures and sells a number of items, including schoo

Question

Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below:

WILLIAMS PRODUCTS INC Income Statement-School Knapsacks For the Quarter Ended June 30 Sales Variable expenses: $240,000 Variable manufacturing expenses Sales commissions $67,200 26,400 7,200 Shipping Total variable expenses 100,800 139,200 Contribution margin Fixed expenses: Salary of product-line manager General factory overhead Depreciation of equipment (no resale value) Advertising-traceable nsurance on inventories Purchasing department 8,750 47,350* 16,500 50,450 3,800 28,8401 lotal fixed expenses 155,690 Operating loss $ (16,490) Allocated on the basis of machine-hours. TAllocated on the basis of sales dollars Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company's total general factory overhead or total purchasing department expenses

Explanation / Answer

Keep school knapsack Drop school knapsack Net Operating Income Sales 240000 0 -240000 Variable expenses: Variable manufacturing expenses 67200 0 67200 Sales commissions 26400 0 26400 Shipping 7200 0 7200 Total variable expenses 100800 0 100800 Contribution margin 139200 0 -139200 Fixed expenses: Salary of line manager 8750 0 8750 General factory overhead 47350 47350 0 Depreciation of equipment 16500 16500 0 Advertising— traceable 50450 0 50450 Insurance on inventories 3800 0 3800 Purchasing department 28840 28840 0 Total fixed expenses 155690 92690 63000 Net operating Income (loss) -16490 -92690 -76200 b No

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