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Given: You are CEO of ABC company which sells XZ1, XZ2 and XZ3. You are now looking at the income statement by product which shows

Given: You are CEO of ABC company which sells XZ1, XZ2 and XZ3. You are now looking at the income statement by product which shows the monthly profit for June.

Income Statement of ABC company (Variable costing) For the month ended June 30, 2022
$(thousand) XZ1 XZ2 XZ3 Total
# of unit sold 50000 30000 10000 90000
Sales revenue 50000 54000 25000 129000
Cost of goods sold 35000 36000 15000 86000
Gross margin 15000 18000 10000 43000
Variable costs 7500 7500 3500 18500
Contribution margin 7500 10500 6500 24500
Allocated fixed costs 7752 8372 3876 20000 *
Net income (loss) -252 2128 2624 4500
($/unit)
Selling price per unit 1000 1800 2500
Costs of goods sold per unit 700 1200 1500
Variable expence per unit 150 250 350
Contribution margin per unit 150 350 650
Net income per unit -5 71 262
* Fixed expenses are allocated to each product in proportion to the amount of the sales revenue.
Fixed expense allocation unit: 20000 / 129000 = 155 (seles revenue in $)
XZ1 155 * 50000 = 7752
XZ2 155 * 54000 = 8372
XZ3 155 * 25000 = 3876

Marketing directer told you that XZ1 shows a loss of $252,000, the the loss can be accumulated in the future even more. Thus, we should increase the selling price as soon as possible, or stop selling XZ1 immediately if it is not possible to increase the selling price. QUESTIONS (GIVE ALL CALCULATION) a.) Prepare the three-column format for your incremental analysis by entering correct numbers in the cells and choose the appropriate cost term.

Income Statement of ABC company (Variable costing) For the month ended June 30, 2022
$ (thousand) Total 3 Products (Current) Total 2 Products (without XZ1) Difference Cost term (pick one from six)
Sales ??? ??? ??? Decremental revenue | Incremental cost | Costs saving (avoidable) | Opportunity cost | Sunk Cost | Decremental profit
Cost of goods sold (Direct costs) ??? ??? ??? Decremental revenue | Incremental cost | Costs saving (avoidable) | Opportunity cost | Sunk Cost | Decremental profit
Other variable costs (direct costs) ??? ??? ??? Decremental revenue | Incremental cost | Costs saving (avoidable) | Opportunity cost | Sunk Cost | Decremental profit
Allocated fixed costs (Indirect costs) ??? ??? ??? Decremental revenue | Incremental cost | Costs saving (avoidable) | Opportunity cost | Sunk Cost | Decremental profit
Net income (or loss) ??? ??? ??? Decremental revenue | Incremental cost | Costs saving (avoidable) | Opportunity cost | Sunk Cost | Decremental profit

Pick and write answer in cells that has ??? with calculation b.) Single-column analysis. Prepare the single-column format for your incremental analysis by entering correct numbers in the columns in yellow, and picking the appropriate titles.

Incremental Analysis
Dropping XZ1 ((pick one from eight) $ (thousand)
Gained sales | Lost sales | Costs of goods sold | Other variable costs | Direct fixed costs | Allocated fixed costs | Net gain from dropping XZ1 | Net loss from dropping XZ1 ???
Cost saving (avoidable if XZ1 is dropped) (Pick one from eight two times)
Gained sales | Lost sales | Costs of goods sold | Other variable costs | Direct fixed costs | Allocated fixed costs | Net gain from dropping XZ1 | Net loss from dropping XZ1 ???
Gained sales | Lost sales | Costs of goods sold | Other variable costs | Direct fixed costs | Allocated fixed costs | Net gain from dropping XZ1 | Net loss from dropping XZ1 ???
Net loss from droppimg XZ1 + Total saving: (Pick one from eight and calculate )
Gained sales | Lost sales | Costs of goods sold | Other variable costs | Direct fixed costs | Allocated fixed costs | Net gain from dropping XZ1 | Net loss from dropping XZ1 ???

Pick and write answer in cells that has ??? with calculation c.) i. Based on the analysis, should XZ1 be dropped? (Y/N) ii.What is the contribution margin per unit for XZ1? ($/unit) iii. Statement "the more XZ1 is sold, the more the loss be" is correct of not? Pick one:

1. Yes. The net income is $5 per unit, and the more the company sells XZ1 the more loss it will take.
2. Yes. The net income per unit of XZ1 is all related to sales volume.
3. No. The contribution margin is positive, and the more the company sells XZ1, the more it can recover the fixed costs, which may end up with a profit.
4. No. The selling price of XZ1 ($1,000 per unit) will contribute the recovery of the fixed cost.

Pick and write answer with calculation

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