E4–3 Time allowed: 20 minutes Thalassines Kataskeves SA of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly profit statement for the bilge pump product line is given below:

The discontinuance of the bilge pump product line would not affect sales of other product lines and would have no noticeable effect on the company’s total general factory overhead or total Purchasing Department expenses.
Required Would you recommend that the bilge pump product line be discontinued?
Support your answer with appropriate computations.

Transcribed Image Text:

Sales Less variable expenses: Thalassines Kataskeves SA Profit statement - bilge pump For the quarter ended 31 March Variable manufacturing expenses Sales commissions Shipping Total variable expenses 330,000 850,000 42,000 18.000 390,000 Contribution margin 460,000 Less fixed expenses: Advertising 270,000 Depreciation of equipment (no resale value) 80,000 General factory overhead 105,000* Salary of product-line manager 32,000 Insurance on inventories 8,000 Purchasing department expenses 45,000 Total fixed expenses 540,000 Net loss (80,000) "Common costs allocated on the basis of machine-hours. *Common costs allocated on the basis of sales.