ENGG433/956-Spring-2019-Week-11 Submission Question 11.36 11.36 Product emphasis and keep or drop; product breakeven; relevant information SALO3,6 The statement of profit or loss information for Kallapur and Trombley Cotton Growers follows: Premium Regular Fancy Total Sales units 100 bales Bales 100 bales 300 bales Sales $2,200 $1,600 $1,800 $5,600 Variable costs 1,400 .1,000 1,080 3,480 Contribution margin 800 600 720 2,120 Production line fixed costs 640 725 520 1,88 Corporate costs (allocated**) 90 80 105 275 Total fixed costs 730 805 625 2,160 Operating income (loss) $70 $(205) $95 $(40) "if the entity drops the product, these costs are no longer incurred. ** none of these corporate costs is expected to change if a product line is dropped. Required (a) Using the general decision rule, which product should the entity emphasize? Support your answer with calculations. (b) Using the general decision rule, should the entity drop Regular (assuming no changes in demand for other products)? Support your answer with calculations. Show how operating income would change if Regular were dropped. (c) At what point (in bales) would the managers be indifferent to dropping Regular? In other words, what is the breakeven point for Regular? (d) What other information would you want before you make a decision about whether to drop Regular? ENGG433/956-Spring-2019-Week-11 Submission Question 11.36 11.36 Product emphasis and keep or drop; product breakeven; relevant information SALO3,6 The statement of profit or loss information for Kallapur and Trombley Cotton Growers follows: Premium Regular Fancy Total Sales units 100 bales Bales 100 bales 300 bales Sales $2,200 $1,600 $1,800 $5,600 Variable costs 1,400 .1,000 1,080 3,480 Contribution margin 800 600 720 2,120 Production line fixed costs 640 725 520 1,88 Corporate costs (allocated**) 90 80 105 275 Total fixed costs 730 805 625 2,160 Operating income (loss) $70 $(205) $95 $(40) "if the entity drops the product, these costs are no longer incurred. ** none of these corporate costs is expected to change if a product line is dropped. Required (a) Using the general decision rule, which product should the entity emphasize? Support your answer with calculations. (b) Using the general decision rule, should the entity drop Regular (assuming no changes in demand for other products)? Support your answer with calculations. Show how operating income would change if Regular were dropped. (c) At what point (in bales) would the managers be indifferent to dropping Regular? In other words, what is the breakeven point for Regular? (d) What other information would you want before you make a decision about whether to drop Regular
