Discontinuing a product line, selling more product. The Northern Furniture Division of Grossman Corporation makes and sells tables and beds. The following revenue and cost information from the division’s activity-based costing system is available:

a. On January 1, 2007, the equipment has a book value of $110,000 and zero disposal price.

Any equipment not used remains idle.

b. Fixed marketing and distribution costs of a product line can be avoided if the line is discontinued.

c. Fixed general administration costs of the division and corporate-office costs will not change ifsales ofindividual product lines are increased or decreased, or if product lines are added or dropped.

4,000 Tables 5,000 Beds Total Revenues ($137.50 X 4,000; $220 X 5,000) $550,000 $1,100,000 $1,650,000 Variable direct materials and direct manufacturing labour costs ($82.50 X 4,000; $115.50 X 5,000) 330,000 577,500 907,500 Amortization on equipment used exclusively by each product line 46,200 63,800 110,000 Marketing and distribution costs

$44,000 (fixed) + $825 per shipment X 40 shipments

$66,000 (fixed) + $825 per shipment X 100 shipments 77,000 148,500 225,500 Fixed general administration costs ofthe division allocated to product lines based on revenues 121,000 242,000 I

363,000 Allocated corporate-office costs allocated to product lines on the basis ofrevenues 55,000 110,000 165,000 Total costs 629,200 1,141,800 1,771,000 Operating income (loss) $ (79,200) $ (41,800) $(121,000)

Required 1. Should the Furniture Division discontinue the tables product line assuming the released facilities remain idle? Show all calculations.

2. Should the Furniture Division sell 4,000 more tables? Assume that to do so the division would have to acquire equipment costing $46,200 with a one-year useful life and zero ter¬

minal disposal value. Assume further that the fixed marketing and distribution costs will not change but that the number ofshipments will double. Show all calculations.