Katy Co. has three product lines, X, Y, and Z. The following financial informati
ID: 2591589 • Letter: K
Question
Katy Co. has three product lines, X, Y, and Z. The following financial information is available for this year:
Product X
Product Y
Product C
Sales revenue
65,000
55,000
45,000
Total variable costs
34,000
33,000
32,000
Contribution Margin
Fixed costs
Avoidable
12,000
10,000
9,000
Unavoidable
8,000
7,000
6,000
Operating Income
Required:
a) Katy Co's total operating income is:
b) Assuming the company drops Product Line Z because it generates a loss without replacing it, operating income for the firm will:
c) Product Line Z is discontinued and the manufacturing space formerly devoted to this line is used to expand the sales of Product Line X by 30%. Assuming that both the variable costs and avoidable fixed costs were increased by 30%, operating income for the company will:
d) Assuming that Product Line Z is discontinued and the manufacturing space formerly devoted to this line is rented for $5,000 per year, operating income for the company will:
Product X
Product Y
Product C
Sales revenue
65,000
55,000
45,000
Total variable costs
34,000
33,000
32,000
Contribution Margin
Fixed costs
Avoidable
12,000
10,000
9,000
Unavoidable
8,000
7,000
6,000
Operating Income
Explanation / Answer
Part 1 - Operating Income of Katy co.
Part 2 - Operating Income when Product Line Z is dropped.
Part 3 - Operating Income if product line Z is dropped and capacity of product X is increased.
Revised Operating income of product X
Operating Income of katy co.
Part 4 - Opeating Income if Product Z is discontinued and space is rented @ $5000.
Particulars Product X Product Y Product Z Total of Katy co. Sales revenue $65000 $55000 $45000 $165000 Variable cost $34000 $33000 $32000 $99000 Contribution Margin $31000 $22000 $13000 $66000 Fixed Costs Avoidable $12000 $10000 $9000 $31000 Unavoidable $8000 $7000 $6000 $21000 Operating Income $11000 $5000 ($2000) $14000Related Questions
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