=+8-34 KKK Dropping a product line, selling more units OBJECTIVES 2, 5 The Southern Division of Grossman Ltd makes and sells tables and beds. The following estimated revenue and cost information from the division’s activity-based costing system is available for 2014:

4000 Tables 5000 Beds Total Revenues ($125 × 4000; $200 × 5000) $500 000 $1 000 000 $1 500 000 Variable direct materials and direct manufacturing labour costs ($75 × 4000; $105 × 5000) 300 000 525 000 825 000 Depreciation on equipment used exclusively by each product line 42 000 58 000 100 000 Marketing and distribution costs

$40 000 (fixed) + ($750 per shipment × 40 shipments) 70 000

$60 000 (fixed) + ($750 per shipment × 100 shipments) 135 000 205 000 Fixed general administration costs of the division allocated to product lines on the basis of revenue 110 000 220 000 330 000 Corporate office costs allocated to product lines on the basis of revenues 50 000 100 000 150 000 Total costs 572 000 1 038 000 1 610 000 Operating profit (loss) $(72 000) $(38 000) $(110 000)

Additional information includes:

a On 1 January 2014, the equipment has a carrying amount of $100000 and zero disposal value. Any equipment not used will remain idle.