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Discontinue a product line (20 points): Members of the board of directors of Douglas' Furniture Co. have received the following operating income data for
Discontinue a product line (20 points): Members of the board of directors of Douglas' Furniture Co. have received the following operating income data for the year just ended: Product lines Sales revenue Less: Cost of goods sold Variable Fixed Gross profit Less: SG&A expenses Variable Fixed Operating income (loss) Living room Bedroom furniture Company total furniture S 280,000 $ 340,000 $ 620,000 S (38,000) $ (46,000) S (84,000) $ (270,000) S (60,000) $ (330,000) S (28,000) S 234,000 S 206,000 S (66,000) S (74,000) S (140,000) $ (45,000) $ (27,000) $ (72,000) $ (139,000) S 133,000 S (6,000) Members of the board are surprised that the living room fumiture line is losing money. They commission a study to determine whether the company should discontinue the line. Company accountants estimate that discontinuing the industrial systems line will: Decrease fixed costs of goods sold by: Decrease fixed SG&A expense by 82,000 S 17,000
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