Please fill in the grey $($part $2$ more important$)$

Keenan Music Differential Analysis Case Before the recent proposal of the Specialty Guitar Project. Keenan M usic had two product lines that include Acoustic Guitar and Electric Guitar. The company sold 25,000 acoustic and 15,000 electric guitars. The segmented Income statement for the company as a whole appears below. Acous tic Variable Expenses Variable coGS Variable Sellingand Admin. Expenses Contribution Margin Product Design Expense (traceable to each guitar) Depreciation of equipment Advertisi ng (traceable to each guitar) Common Fixed Expenses Net Operati Loss) 6,542.188 2,672.813 1,055.450 141.750 1.179393 2,468.750 2381.250 106.315 1,817.915 4.soo.DD0 4,073.438 291.563 89.750 (638,523) While Keenan Music isnakinga profitofover$l million. it appears that Electric isnot makinga profit as a productline. Keenan Music has been tryingdifferent strategies to improve Electric Guitar's profit. but the line contl nues to make a loss. The CFO of Keenan Music has asked the accountant to consider dropping the electric product line. Ifthe product line were dropped. the traceable fixed expenses for Electric would be eliminated. but none of the common fixed expenses would be affected. The equi pnent used In the production was purchased lone tl me ago and Will have no other use or can be sold. 1 2 What is the impact on net operati ne i ncome tyy discontinuing the Electric Guitars product line? Variable Expenses Variable coGS Variable Sellingand Admin. Expenses Contribution Margin Product Design Expense (Traceable to each guitar) Depreciation of equipment Advertisi (Traceable to each guitar) Common Fixed Expenses Net Operati ng Loss) Dropping the Electric Guitar product line will Current Company Total 6,542.18750 2.672.812.50 94.22010 1,055.45010 141.750.00 decrease Company Total Diffe rence Electric 2.468.7SO.DO 2381.25000 35.02010 (4,073.43750) (135.00000) (291.56250) (59200.00) the company's net income by Should the Electric Guitar product line be dropped? NO While the Company IS ponderingabout the fate of the Electric Guitar. another local company approached Keenan Music and offered to make the Electric Gu itar for them with a selli ng price 285 Based on the current cost nformatlon above. the accountant figured out the full cost of maki neand selli neone Electric Guitar to be S342S8. as presented below. It appears that the purchasingthe electric guitars will help improve the company's bottom-line. If Keenan purchases the electric guitars. instead of makingthem. the company will continue to market and sell the guitars to the customers the same way: hence, the variable sellingand administrative expenses and the advertisi neexpense will not be affected. However. they will no longer need to design the electric guitars so the product design expense can be avoided. Also. as stated above. the equi pnvent used n the production was purchased lone tl me ago andwill have noother useofcan besold. Finally, the common fixedexpenseswill not beaffected if Keenan purchases theelec guitars. The number of Electric Guitars needed is The selli ne price offered try the local company is What are the Relevant Cost Per Unit. Total Relevant Cost for 15,000 guitars, and Total Purchase Cost for 15,000 guitars, if Keenan Music stops maki nethe Electric Guitar and purchases from the local company? Electric Guitar Electric Guitar Product Cost Relevant Cost Direct Materials Direct Labor Variable MOH Variable S & A Expenses Product Design Expense Depreciation of Equipment Advertisi ng Expense Common Fixed Expenses Total Relevant Cost for 15.000 guitars Total Purchase Cost for 15,000 guitars Cost Difference Per Llnit 19663 68.75 342.58 Per Llnit 68.75 decrease Purchasing the Electric Guitars from the local company will Should Keenan Mus ic purchase the Electric Guitars ? the company's net income by