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Bill's Roofing is trying to decide whether to keep or drop its Wood shingles product line. Monthly sales and cost information are below: Product Line
Bill's Roofing is trying to decide whether to keep or drop its Wood shingles product line. Monthly sales and cost information are below:
Product Line | |||
Total | Metal | Wood | |
Sales | $ 140,000 | $ 80,000 | $ 60,000 |
Variable expenses | 80,000 | 45,000 | 35,000 |
Contribution margin | 60,000 | 35,000 | 25,000 |
Fixed expenses: | |||
Salaries | 14,000 | 8,000 | 6,000 |
Advertising | 9,000 | 4,500 | 4,500 |
Utilities | 2,500 | 1,000 | 1,500 |
Depreciation | 4,000 | 2,500 | 1,500 |
Rent | 27,000 | 15,000 | 12,000 |
Total Fixed Expenses | 56,500 | 31,000 | 25,500 |
Net operating income (loss) | $ 3,500 | $ 4,000 | $ (500) |
Additional Information:
- Salaries are paid to employees working directly on the specific product.
- Advertising costs are specific to each product and are avoidable if the line is dropped.
- Utilities are for the entire company and are allocated to products based on the space occupied in the factory.
- Depreciation is for previously purchased equipment and is specific to each product line. The equipment cannot be resold.
- Rent is for the entire building and is allocated to product lines based on sales dollars.
How will Bill's net operating income change if the Wood shingles product line is dropped?
Decrease by $25,000
Increase by $500
Increase by $13,000
Decrease by $14,500
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