(20%) The executives at Frox Foods Industries are evaluating each of their produ
ID: 2595404 • Letter: #
Question
(20%) The executives at Frox Foods Industries are evaluating each of their product lines. They sent you the following financial information for each segment. Falafel Knishes $100,000$200,000$500,000 $800,000 Pizza Total Sales Variable Costs(50,000) (150,000) (400,000) (600,000) Contribution Margin 50,00050,000 100,000200,000 Fixed Expenses Operating Income 40,000 $ 25,000 (50 (150.000) (85,000) S (50,000) S 15,000 10,000 (25,000) The executives at Frox Foods determined-based on market research- that if it discontinues the Pizza Division then the Falafel Division revenues will be reduced to half In addition, the executive salaries of $100,000 were paid via the Pizza Division and was considered unavoidable. 1) Should Frox discontinue its Pizza Division? 2) What would be the operating income (loss) of the Falafel Division if Frox 3) What would be the operating income (loss) of Frox Foods if Frox decides 4) Assume that the Falafel Division would not be affected by the closure of decides to discontinue its Pizza Division? to discontinue its Pizza Division? the Pizza Division, what would be the operating income (loss) of Frox Foods if Frox decides to discontinue its Pizza Division? 5) Assume that the Falafel Division would be affected, but the executive salaries would be reduced to $25,000. Should Frox discontinue its Pizza Division?Explanation / Answer
1. NO.
2. Operating income of Falafel Division: $15000
With revenues halved, contributon margin would also be halved to $25000 which would reduce the operating income by the same amount to $15000 ($40000 - $25000).
3. Operating loss of Frox Foods: $60000
4. Operating loss of Frox Foods: $35000
Note: The executive salaries of $100000 being unavoidable, the remaining fixed expenses of Pizza Division $50000 ($150000 - $100000) are considered to be avoidable and hence will be eliminted if the Pizza Division is dropped.
Per Chegg guidelines, 4 sub-parts have been answered.
Current Total Total If Pizza Division Is Dropped Difference: Net Operating Income Increase or (Decrease) Sales 800000 250000 -550000 Variable costs 600000 175000 425000 Contribution margin 200000 75000 -125000 Fixed expenses 185000 135000 50000 Operating income (loss) 15000 -60000 -75000Related Questions
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