Question
Adidas manufactures two products; the following contribution format income statement shows that product B is not performing well. Required: Conduct a scientific analysis to help
Adidas manufactures two products; the following contribution format income statement shows that product B is not performing well.
Required:
Conduct a scientific analysis to help Adidas management to decide whether to drop product B or to keep it:
Details | Total | Product G | Product B |
Sales | 430,000 | 320,000 | 110,000 |
Variable expenses | 300,000 | 210,000 | 90,000 |
Contribution margin | 160,000 | 110,000 | 20,000 |
Fixed expenses: | |||
Rent | 30,000 | 20,000 | 10,000 |
Depreciation | 15,000 | 10,000 | 5,000 |
Maintenance | 20,000 | 14,000 | 6,000 |
Supervisor salaries | 48,000 | 28,000 | 20,000 |
manufacturing overhead | 16,000 | 12,000 | 4,000 |
Net Income (loss) | 1,000 | 26,000 | (25,000) |
Additional Information:
- Rent is for one plant space where the two products are manufactured.
- Special equipment of product B will be sold if the product dropped
- Maintenance expense of product B will be reduced by 5,000
- Supervisors salaries are avoidable
- 3,000 of manufacturing overhead will be reallocated to product G
Conduct a scientific analysis to help Adidas management to decide whether to drop product B or to keep it.
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