Question
18.) Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data: Product Total A B C Sales $ 112,000
18.)
Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data: |
Product | ||||||||
Total | A | B | C | |||||
Sales | $ | 112,000 | $ | 50,000 | $ | 26,000 | $ | 36,000 |
Variable expenses | 61,800 | 30,600 | 10,600 | 20,600 | ||||
Contribution margin | 50,200 | 19,400 | 15,400 | 15,400 | ||||
Fixed expenses: | ||||||||
Rent | 6,800 | 3,100 | 1,600 | 2,100 | ||||
Depreciation | 7,800 | 3,600 | 1,800 | 2,400 | ||||
Utilities | 5,260 | 2,600 | 560 | 2,100 | ||||
Supervisors' salaries | 6,260 | 2,100 | 560 | 3,600 | ||||
Maintenance | 3,720 | 2,100 | 660 | 960 | ||||
Administrative expenses | 11,800 | 3,600 | 2,600 | 5,600 | ||||
Total fixed expenses | 41,640 | 17,100 | 7,780 | 16,760 | ||||
Net operating income | $ | 8,560 | $ | 2,300 | $ | 7,620 | $ | (1,360) |
The following additional information is available: | |
The factory rent of $1,560 assigned to Product C is avoidable if the product were dropped. | |
The company's total depreciation would not be affected by dropping C. | |
Eliminating Product C will reduce the monthly utility bill from $2,100 to $860. | |
All supervisors' salaries are avoidable. | |
If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,720 to $2,600. | |
Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,600. |
Required: | |
1. | Calculate the advantage or disadvantage in dropping Product C. (Input the amount as a positive value. Omit the "$" sign in your response.) |
(Click to select)DisadvantageAdvantage in dropping Product C | $ |
2. | Should the product be dropped? | ||||
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