I need help with question 1 case 26-3 Hanson manufacturing from Accounting texts and cases.
1.If the company had dropped product 103 as of January 1, 1993, what effect would that action had on the $151,000 profit for the first six months of 1993?
EXHIBIT 4: Profit and Loss by Product, at Standard Showing Variances from January 1 to June 30, 1993 Product 101 Product 102 Product 103 Total Stan- Total Stan- Total .Stan- Total . Stan- Total dard at dard at dard at dard Actual per Stan- per Stan- per Stan- (thou- (thou- Cwt. dard Vari- Item Cut. dard Cut. dard sands) sands) ances Rent 0.2171 210 0.4370 311 0.6079. 305 826 750 + 76 Property taxes 0.1407 140 0.1408 100 0.1408 :71 311 303 + 8 Property insurance 0.1341 134 0.1340 95 0.1337 67 296 278 + 18 Compensation insurance 0.2809 280 0.2758 196 0.3212 161 637 633 +.4 Direct labor 2.3281 2,321 2.2736 " 1,619 2.67:48 1,341 5, 281 27 Indirect labor 0.7940 :792 0.7906 S,308 :563 0.8947 448 1,803 Power 0.0403 40 0.0932 1,721 + 82 66 0.1175 59 165 Light and heat 170 0.0202 20 0.0418 30 0.0588 29 79 83 -4 Building service 0.0136 :14 0.0282 20 0.0395 20 54 50 Materials 1.3765 1,372 1.7569 1,251 3,569 #+ 4. 1.8866 946 3,544 + 25 Supplies 0.0943 94 0.1777 127 0.1368 69 290 32 0.0554 290 Repairs 0.0319 39 0.0395 20 91 88 + 3 Total production cost 5.4657 5,449 6.2040 4,418 7.0519 3,535 1.6396 13,402 13,218 Selling expense 1,634 1.7074 +184 1,216 1.8288 917 3,767 3,706 + 61. General administration : 0.5820 580 0.6060 432 0.6484 325 Depreciation 1.0173 1,337 713 1,378 - 41 1,014 1.5957 -1, 136 1.4225 2,863 2,681 +182 Interest 0.0943 94 0.1486 106 0.2047 103 303 290 + 13 Total cost 8.7989 8,771 10.2617 : '7,307 11:1563 5,592 21,672 21,273 + 399 Less other income 0.0183 18 0.0194 14 0.0193 :10 42 42 8.7806 8,753 10.2423 7,294 11.1371 5,583 21,630 21,231 Actual sales (net) + 399 9.3083 9,279 9.6906 6,901 10.3782 5,202 21,382 21,382 Profit or loss 0.5276 526 (0.5516) (393) (0.7589) (380) (248) 151 +399 Unit sales (cwt.) 996,859 712, 102 : 501,276 Note: Figures may not add exactly because of rounding.EXHIBIT 3 . Accounting Department's Commentary on Costs Direct labor: Variable. Nonunion shop at going community rates. No abnormal demands foreseen. It may be assumed that direct labor dollars is an adequate measure of capacity utilization. Compensation insurance: Variable. Nine percent of direct and indirect labor is a good estimate. Materials: Variable. Exhibit 2 figures are accurate. Includes waste allowances. Power: Variable. Rates are fixed. Supplies: Variable. Exhibit 2 figures are accurate. Repairs: Variable. Varies as volume changes within normal operating range. Lower and upper limits are fixed. General administration, selling expense, indirect labor, interest: Almost nonvariable. Can be changed by management decision. Cash discount: Almost nonvariable. Average cash discounts taken are consistent from year to year. Percentages in Exhibit 2 are accurate. Light and heat: Almost nonvariable. Heat varies only with fuel cost changes. Light is a fixed item regardless of level of production. Property taxes: Almost nonvariable. Under the lease terms, Hanson Company pays the taxes; assessed valuation has been constant; the rate has risen slowly. Any change in the near future will be small and independent of production volume. Rent: Nonvariable. Lease has five years to run. Building service: Nonvariable. At normal business level, variances are small. Property insurance: Nonvariable. Three-year policy with fixed premium. Depreciation: Nonvariable. Fixed-dollar total
