Alberta Gauge Company, Limited, a small manufacturing company in Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience. Sales Cost of goods sold Gross margin ALBERTA GAUGE COMPANY, LIMITED Income Statement Second Quarter (in thousands) Q-Gauge $2,240 Selling and administrative expenses Income before taxes 1,176 $ 1,064 402 $662 E-Gauge $1,700 930 $ 770 R-Gauge 1,017 $(247) $ 1,540 1,590 Les (50) 455 Total $ 5,480 3,696 $ 1,784 $ (505) 1,874 $ (90) Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. Increase quarterly sales promotion by $180,000 on the Q-gauge product line in order to increase sales volume by 15 percent . Cut production on the E-gauge line by 50 percent, and cut the traceable advertising and promotion for this line to $52,000 each quarter Jason Sperry, the controller, suggested a more careful study of the financial relationships to determine the possible effects on the company's operating results of the president's proposed course of action. The president agreed and assigned JoAnn Brower, the assistant controller, to prepare an analysis. Brower has gathered the following information. All three gauges are manufactured with common equipment and facilities. The selling and administrative expense is allocated to the three gauge lines based on average sales volume over the past three years. Special selling expenses (primarily advertising, promotion, and shipping) are incurred for each gauge as follows: Type of Gauges Q-gauge E-gauge R-gauge Quarterly Advertising and Promotion $ 290,000 180,000 360,000 Shipping Expenses $ 42 per unit 36 per unit 42 per unit The unit manufacturing costs for the three products are as follows: Manufacturing cost type Direct material Direct labor Q-Gauge $ 36.00 E-Gauge $21.00 R-Gauge $ 82.00 35.00 25.00 92.00 51.00 30.00 92.00 25.00 17.00 52.00 $147.00 $93.00 $318.00 Variable manufacturing overhead Fixed manufacturing overhead Total The unit sales prices for the three products are as follows: Q-gauge E-gauge R-gauge $280 170 308 2. Use the operating data presented for Alberta Gauge Company and assume that the president's proposed course of action had be implemented at the beginning of the second quarter. a. Calculate the net impact on income before taxes for each of the three suggestions. b-1. Calculate contribution margin for R-gauge. b-2. Was the president correct in proposing that the R-gauge line be eliminated? c-1. Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge. c-2. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? Complete this question by entering your answers in the tabs below. Req 2A Req 281 Req 282 Req 2C1 Req 2C2 Calculate the net impact on income before taxes for each of the three suggestions. Increase (decrease) in segment contribution E-Gauge Q-Gauge (94) S 158 R.Gauge (505) Req 281 > b-2. Was the president correct in proposing that the R-gauge line be eliminated? c-1. Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge. c-2. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? Complete this question by entering your answers in the tabs below. Req 2A Req 2B1 Req 282 Req 2C1 Req 202 Calculate contribution margin for R-gauge. Contribution margin $ 42 x 2. Use the operating data presented for Alberta Gauge Company and assume that the president's proposed implemented at the beginning of the second quarter. a. Calculate the net impact on income before taxes for each of the three suggestions. b-1. Calculate contribution margin for R-gauge b-2. Was the president correct in proposing that the R-gauge line be eliminated? c-1. Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge. c-2. Was the president correct in promoting the Q-gauge line rather than the E-gauge line? Complete this question by entering your answers in the tabs below. Req 2A Req 2B1 Req 282 Req 201 Req 2C2 Calculate the contribution per direct-labor dollar for Q-gauge and E-gauge. Note: Round your answers to 2 decimal places. Contribution per direct-labor dollar E-Gauge Q-Gauge 3.76 $ 451