Question
Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands; unit amounts are not. Assume that P&G decides to
- Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands; unit amounts are not. Assume that P&G decides to eliminate one shampoo line, Luster, for one of its segments that currently produces three products. As a result, the following are expected to occur.
(1) The number of units sold for the segment is expected to drop by only 125,000 because of the elimination of Luster, since most customers are expected to purchase an Anagen or Catagen product instead. The shift of sales from Luster to Anagen and Catagen is expected to be evenly split. In other words, the sales of Anagen and Catagen will each increase by 50,000 units.
Product-Line Earnings Statements (Dollar amounts are in thousands) | ||||
Annual Costs of Operating Each Product Line | Anagen | Catagen | Luster | Total |
Sales in units | 450,000 | 450,000 | 225,000 | 1,125,000 |
Sales in dollars | 900,000 | 900,000 | 450,000 | 2,250,000 |
Unit-level costs: | ||||
Cost of production | 85,500 | 85,500 | 46,200 | 217,200 |
Sales commissions | 11,700 | 11,700 | 6,000 | 29,400 |
Shipping and handling | 20,250 | 18,000 | 9,000 | 47,250 |
Miscellaneous | 6,750 | 4,500 | 2,250 | 13,500 |
Total unit-level costs | 124,200 | 119,700 | 63,450 | 307,350 |
Product-level costs: | ||||
Supervisors salaries | 9,600 | 7,200 | 2,400 | 19,200 |
Facility-level costs: | ||||
Rent | 100,000 | 100,000 | 50,000 | 250,000 |
Utilities | 112,500 | 112,500 | 56,250 | 281,250 |
Depreciation on equipment | 400,000 | 400,000 | 200,000 | 1,000,000 |
Allocated companywide expenses | 22,500 | 22,500 | 11,250 | 56,250 |
Total facility-level costs | 635,000 | 635,000 | 317,500 | 1,587,500 |
Total product cost | 768,800 | 761,900 | 383,350 | 1,914,050 |
Profit on products | $131,200 | $138,100 | $66,650 | $335,950 |
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