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Khobar Electrical Manufacturing Company produces and sells only two types of electrical products; Washing Machines and Dish Washers. The following information related to company's performance
Khobar Electrical Manufacturing Company produces and sells only two types of electrical products; Washing Machines and Dish Washers. The following information related to company's performance for 2020 is presented below: Sales Revenues Variable costs Washing Dish Company Machines Washers $ 4,000,000 $ 2.800,000 $ 6,800,000 $(2.400.000) S (1,680,000) S (4.080,000) Contribution margin $ 1,600,000 $ 1,120,000 $2,720,000 Traceable Fixed Costs $ (800,000) $ (800,000) S (1.600,000) Committed Fixed Costs: Factory Insurance Costs Maintenance Costs Factory Overhead Costs S (58,824) $ (14.116) $ (305,880) $ (41,176) $ (100.000) S (9,884) $ (24,000) $ (214,120) S (520,000) Net income $ 421,180 $ 54,820 $ 476,000 The two production lines take up 50% of the factory's capacity. The Chief Executive Officer (CEO) of the company is studying the performance of the two lines trying to enhance the performance of the company. The CEO is planning to close the Dish Washers production line and just focus on Washing Machines line. The Managerial Accounting Department provided the CEO with the following information to help him in making the decision: If the company stop the Dish Washers production line, traceable costs can be saved. If the company stop the Dish Washers production line, sales and cost of sales of Washing Machines line can increase by 20%. The previous CEO had decided to allocate the committed fixed costs between the two production lines based upon the percentage of capacity utilized in the factory. The CEO of the company could not make a decision based upon the information provided by the Managerial Accounting Department, so he asked you (as a senior manager) to analyze the situation and recommend whether the Company should drop or keep the Dish Washers production line with reasons
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