Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has
ID: 2598332 • Letter: T
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
Answer:
Line
Keep Product
Drop Product Line
Difference:
Net Operating
Income Increase
or (Decrease
Sales
420,000
0
-420,000
Variable expenses:
Variable manufacturing expenses
134000
0
-134,000
Sales commissions
46000
0
-46,000
Shipping
22000
0
-22,000
Total variable expenses
202000
0
-202,000
Contribution margin
218,000
0
-218,000
Fixed expenses:
0
Advertising
27000
0
-27,000
Depreciation of equipment
109000
109000
0
General factory overhead
43000
43000
0
Salary of product line manager
112000
0
-112,000
Insurance on inventories
14000
-14,000
Purchasing department
46000
46000
0
Total fixed expenses
351000
198000
-153,000
Net operating Income (loss)
-133,000
-198,000
-65,000
Incresing in net operating loss
( 65000,)
Line
Keep Product
Drop Product Line
Difference:
Net Operating
Income Increase
or (Decrease
Sales
420,000
0
-420,000
Variable expenses:
Variable manufacturing expenses
134000
0
-134,000
Sales commissions
46000
0
-46,000
Shipping
22000
0
-22,000
Total variable expenses
202000
0
-202,000
Contribution margin
218,000
0
-218,000
Fixed expenses:
0
Advertising
27000
0
-27,000
Depreciation of equipment
109000
109000
0
General factory overhead
43000
43000
0
Salary of product line manager
112000
0
-112,000
Insurance on inventories
14000
-14,000
Purchasing department
46000
46000
0
Total fixed expenses
351000
198000
-153,000
Net operating Income (loss)
-133,000
-198,000
-65,000
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