chapter 12 hw 1

Chapter 12 - Homework 1: The Redsock Corporation produces three product lines with income for the next year budgeted as follows: TOTAL Z23-511 DX LSR-15 XJ-5000 Sales Revenues $1,000,000 $ 500,000 $ 300,000 $ 200,000 Less: Variable Costs $ 540,000 $ 290,000 $ 150,000 $100,000 Contribution Margin $ 460,000 $ 210,000 $ 150,000 $ 100,000 Less: Fixed Costs Direct Fixed Costs $ 320,000 $ 120,000 $ 115,000 $ 85,000 Common Fixed Costs $ 100,000 $ 50,000 $ 30,000 $ 20,000 Total Fixed Costs $ 420,000 $ 170,000 $ 145,000 $ 105,000 Operating Income/(Loss) $ 40,000 $ 40,000 $ 5,000 $ (5,000) . . Management is considering dropping the XJ-5000 product lines so as to avoid the $5,000 loss. Of the fixed costs, all direct fixed costs are attributable to the given product line and will not be incurred if a product line is dropped. The common fixed costs are allocated to the product lines based on sales dollars. The total cost of $100,000 will remain if any product line is dropped. 1. Should management drop the XJ-5000? By how much will income increase or decrease by dropping the XJ-5000? 2. Suppose that if management drops the XJ-5000 production and sales of the 223-511DX will increase by 10%. Should management drop the XJ-500 so as to increase sales of the Z23-511 DX? By how much will income increase or decrease