principles of Managerial Accounting (0502230) 2020/2021_II

LO4 (Relevant Costs)

Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement:

Dexter Products, Inc. Income StatementOvernight Cases

For the Quarter Ended June 30

sale. $450,000

variable expenses.

Variable expenses: Variable manufacturing expenses . . . . . . . . . . . . . . . $130,000

Sales commissions . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000

Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Total variable expenses . . . . . . . . . . . . . . . . . . . . . . . . 190,000

Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,000

Fixed expenses:

Salary of product-line manager . . . . . . . . . . . . . . . . . 21,000

General factory overhead . . . . . . . . . . . . . . . . . . . . 104,000*

Depreciation of equipment (no resale value) . . . . . . . 36,000

Advertisingtraceable . . . . . . . . . . . . . . . . . . . . . . . 110,000

Insurance on inventories . . . . . . . . . . . . . . . . . . . . . . 9,000

Purchasing department . . . . . . . . . . . . . . . . . . . . . . . 50,000

Total fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000

Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,000

Discontinuing the overnight cases would not affect the companys sales of its other product lines, its total general factory overhead, or its total purchasing department expenses.

Required:

Would you recommend that the company discontinue the manufacture and sale of overnight cases? Support your answer with appropriate computations.