Question
Kenmore Company manufactures two products. Both products have the same sales? price, and the volume of sales is equivalent.? However, due to the difference in
Kenmore Company manufactures two products. Both products have the same sales? price, and the volume of sales is equivalent.? However, due to the difference in production? processes, Product A has higher variable costs and Product B has higher fixed costs. Management is considering dropping Product B because that product line has an operating loss.
Kenmore Company | |||
Income Statement | |||
Month Ended June 30, 2018 | |||
| Total | Product A | Product B |
Net Sales Revenue | $170,000 | $85,000 | $85,000 |
Variable Costs | 150,000 | 77,000 | 73,000 |
Contribution Margin | 20,000 | 8,000 | 12,000 |
Fixed Costs | 30,000 | 3,000 | 27,000 |
Operating Income/(Loss) | $(10,000) | $5,000 | $(15,000) |
1. | If fixed costs cannot be? avoided, should Kenmore drop Product B? Why or why not? (Use a parenthesis to enter a decrease) |
| ||
Expected Decrease in revenue ___________________ Expected decrease in total variable costs ___________________ Expected increase (decrease) in operating income ___________________
Kenmore ______________ (should/should not) drop product B because operating income will ______________ (decrease by 12,000/increase by 12,000/decrease by 15,000/increase by 15,000)
2. if 50% of Product B's fixedcosts are avoidable. should Kenmore drop Product B? Why or why not? (Use a parenthesis to enter a decrease)
Expected decrease in total costs ___________________ Expected Increase/decrease in operating income ___________________
Kenmore ______________ (should/should not) drop product B because operating income will ______________ (decrease by 15,000/increase by 15,000/decrease by 1,500/increase by 1,500) |
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