Exercise 12-15 Dropping or Retaining a Segment [LO12-21 Thalassines kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassines kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 Sales $470,000 Variable expenses: Variable manufacturing expenses $129,000 Sales commissions 53,000 Shipping 25, Total variable expenses 207,eee Contribution margin 263,000 Fixed expenses: Advertising (for the bilge pump 26,000 product line) Depreciation of equipment (no 101,000 resale value) General factory overhead 45,000 Salary of product-line manager 123,000 Insurance on inventories 14,000 Purchasing department 40,000+ Total fixed expenses Net operating loss $(86,000) 349.000 "Common costs allocated on the basis of machine-hours. tCommon costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line? Exercise 12-17 Dropping or Retaining a Segment (LO12-2] Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Department Total Hardware Linens Sales $4,160,000 $3,040,000 $1,120,000 Variable expenses 1,209,000 803,000 406,000 Contribution 2,951,000 2,237,000 714,000 margin Fixed expenses 2,160,000 1,320,000 840,000 Net operating $ 791,000 $ 917,000 $ (126,000) income (loss) A study indicates that $375,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 20% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department? Exercise 12-10 Make or Buy Decision (L012-3] Futura Company purchases the 71,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.50 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $12.90 as shown below: Unit Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Total $ 6.00 2.20 2.00 $142,000 1.30 $ 92,300 0.80 0.60 $ 42,600 $12.90 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $142,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $89,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 71,000 starters instead of buying them from an outside supplier