Question
Company P has provided the monthly income statement shown below: Total Product A Product B Product C Sales $100,000 $50,000 $20,000 $30,000 Variable Expense 60,000
Company P has provided the monthly income statement shown below:
Total | Product A | Product B | Product C | |
Sales | $100,000 | $50,000 | $20,000 | $30,000 |
Variable Expense | 60,000 | 30,000 | 10,000 | 20,000 |
Contribution Margin | 40,000 | 20,000 | 10,000 | 10,000 |
Fixed Expenses: | ||||
Facilities Cost | 9,000 | 4,500 | 1,500 | 3,000 |
Depreciation | 6,000 | 3,000 | 1,200 | 1,800 |
Supervisor's salaries | 5,000 | 1,500 | 500 | 3,000 |
Maintenance | 3,000 | 1,500 | 600 | 900 |
Administrative Expenses | 10,000 | 3,000 | 2,000 | 5,000 |
Total fixed expenses | 33,000 | 13,500 | 5,800 | 13,700 |
Net operating income | 7,000 | 6,500 | 4,200 | -3,700 |
The owners are considering dropping Product C. The following additional information is available:
- If product C is dropped, sales volume of Product B is expected to increase by 10%. - The $3,000 facilites cost of Product C is a traceable fixed cost. - The company's total depreciation would not change if Product C were dropped. - The maintenance department will be able to reduce monthly expenses by $500 if Product C is dropped. - If product C were dropped, the salarues of two administrative persons would be cut. Their combined salaries (included in Administrative expense) total $3,000 per month. Question: Show your work - by how much would the NOI of Pearl increase or deacreas if they drop Product C?
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