Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has

Question

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassines Kataskeves, S.A Income Statement-Bilge Pump For the Quarter Ended March 31 Sales Variable expenses: $420,000 Variable manufacturing expenses Sales Comm1551ons Shipping $134,000 46,000 22,000 Total variable expenses Contribution margin Fixed expenses: 202,000 218,000 Advertising (for the bilge pump product line) 27,000 109,000 43,000 112,000 14,000 46,000t Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories Purchasing department Total fixed expenses 351,000 Net operating loss $ (133,000) *Common costs allocated on the basis of machine-hours tCommon costs allocated on the basis of sales dollars Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses Required What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

Explanation / Answer

Loss in contribution margin -218000 Avoidable fixed costs: Advertising 27000 Salary of product line manager 112000 Insurance on inventories 14000 Financial advantage(disadvantage) -65000 Fianancial disadvantage = $65000

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