Managerial Accounting

QUESTION 5: 15 marks SHOW ALL SUPPORTING CALCULATIONS FOR THIS PROBLEM. NO MARKS WILL BE AWARDED FOR ANSWERS TO THE PROBLEMS UNSUPPORTED BY CLEARLY SHOWN CALCULATIONS. Charlotte Higgins, the Chief Executive Officer (CEO) and co-founder of Blue Herring Industries, is contemplating the future of one of the company's product lines, the Glolight self-powered lamp. The Glolight is a hand-cranked instant charger that, with a minute of cranking, can power a phone with a dead battery for almost thirty minutes. More astonishingly, though, it can also double up as a 160-lumen lamp, which is more than bright enough to light up any average-sized room no matter how dark it might be. Although the product has been quite popular ever since its launch in 2015, it has simply not been as profitable as the co-founders hoped it would be. It is now nearing the end of 2020, and Charlotte is wondering whether or not the company should continue producing the lamp in the coming year. She knows that the decision cannot be put off any longer, and is staring at the contribution margin-format income statement that Felicia Gillespie, the company's Chief Financial Officer (CFO) has created for her: Blue Herring Industries Income Statement- Glolight Self-powered Lamp For the Quarter ended September 2020 Sales $7,159,000 Variable expenses: Variable manufacturing expenses $2,291,000 Variable selling expenses 893,000 Shipping and delivery expenses 250,000 Total variable expenses $3,434,000 Contribution margin $3,725,000 Fixed expenses General factory overhead* $1,933,000 Advertising - traceable 2,107,000 Corporate office expenses' 1,075,000 Product line manager salary 398,000 Insurance on inventories 211,000 Depreciation of equipment (no resale value) 692,000 Total fixed expenses $6,416,000 Operating loss $(2,691,000) *Allocated on the basis of machine hours Allocated on the basis of sales dollars Discontinuing the lamp would not have any effect on the company's other product lines, and would have no effect on either the general factory overhead or the corporate office expenses. Required: Make a recommendation to Charlotte Higgins as to whether Blue Herring Industries should either keep or drop the Glolight self-powered lamp product line. Support your recommendation with appropriate computations. 15 marks