Answered step by step
Verified Expert Solution
Question
1 Approved Answer
At current level of sales, compute the effect of net operating income if the Model C3 lawn chair is dropped. Would you recommend that the
At current level of sales, compute the effect of net operating income if the Model C3 lawn chair is dropped. Would you recommend that the model C3 lawn chair be dropped?
What would sales of the model C3 lawn chair have to be, at minimum, in order to justify retaining the product? (Hint: Set this up as a break-even problem, but include only the relevant costs.
A condensed statement of operating income for the company and for the model C3 lawn chair for the quarter ended June 30 follows: Model C3 All Lawn Chair Products R1,800,000* R7,400,000 Sales Cost of sales: Direct materials Direct labour Fringe benefits (20% of direct labour) Variable manufacturing overhead Building rent and maintenance Depreciation Total cost of sales Gross margin Selling and administrative expenses : Product managers' salaries Sales commissions (5% of sales) Fringe benefits (20% of salaries and commissions) Shipping General administrative expenses Total selling and administrative expenses Net operating income (loss) 720,000 432,000 86,400 21,600 23, 400 115,200 1,398,600 401,400 1,924,000 1,702,000 340,400 74,000 74,000 185,000 4,299,400 3,100,600 59,400 90,000 29,880 25,000 288,000 492, 280 (90,880) 185,000 370,000 111,000 296,000 1,184,000 2,146,000 R 954,600 R *The currency in South Africa is the rand, denoted here by R. The following additional data have been supplied by the company: a. Direct labour is a variable cost at Heritage Garden Furniture. b. All of the company's products are manufactured in the same facility and use the same equipment. Building rent, maintenance, and depreciation are allocated to products using various bases. The equipment does not wear out through use; it eventually becomes obsolete. c. There is ample capacity to fill all orders. d. Dropping the model C3 lawn chair would have no effect on sales of other product lines. e. Inventories of work in process or finished goods are insignificant f. Shipping costs are traced directly to products. g. General administrative expenses are allocated to products on the basis of sales dollars. There would be no effect on the total general administrative expenses if the model C3 lawn chair were dropped. h. If the model C3 lawn chair were dropped, the product manager would be laid off
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started