Product Line Decision. The following segmented annual income statement is for Hathaway Manufacturing, Inc.: Product Lines Sales revenue Variable costs Contribution margin Direct fixed costs Allocated fixed costs Profit (loss) Computers $1,125,000 480,000 $ 645,000 650,000 112,500 $(117,500) Furniture $1,500,000 825,000 $ 675,000 480,000 150,000 $ 45,000 Supplies $375,000 150,000 $ 225,000 105,000 37,500 $ 82,500 Total $3,000,000 1,455,000 $1,545,000 1,235,000 300,000 $ 10,000 Management is concerned about the significant losses associated with the computers product line and would like to drop this product line. Allocated fixed costs are assigned to product lines based on sales. If the computers product line is eliminated, total allocated fixed costs are assigned to the remaining product lines, and all variable and direct fixed costs for the computers product line will be eliminated. Required: a. Perform differential analysis using the format presented in Table 7.6, Table 7.7, and Table 7.8. Assume keeping all product lines is Alternative 1, and dropping the computers product line is Alternative 2. b. Which alternative is best? Explain. C. Summarize the result of dropping the computer product line using the format presented in Table 7.9. d. Explain what happened to the profitability of the furniture product line as a result of dropping the computers product line. 31. Product Line Decision a. Alternative 1 (Keep all product lines) Computers Product Lines Furniture Supplies Total $3,000,000 Sales revenue Variable costs Contribution margin Direct fixed costs Allocated fixed costs Profit (loss) Correct Incorrect Incorrect Incorrect Incorrect Incorrect Total Alternative 2 (Drop computers product line) Product Lines Furniture Supplies Sales revenue Variable costs Contribution margin Direct fixed costs Allocated fixed costs Profit (loss) Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Differential Analysis (Keep all product lines) Alternative 1 Total ( (Drop Computers) Alternative 2 Total Differential Amount $1,125,000 Alternative 1 is: Higher Sales revenue Variable costs Contribution margin Direct fixed costs Allocated fixed costs Profit (loss) Differential Amount Correct Incorrect Incorrect Incorrect Alternative 1 Correct Incorrect Incorrect Incorrect . Incorrect Incorrect Incorrect b. Use the dropdown menu to select the best answer from the options below. a. Dropping the computer line is best because profit would decrease. b. Keeping all product lines is best because profit would decrease. c. Keeping all product lines is best because profit would increase. d. Dropping the computer line is best because profit would increase. C. Amounts shown in parentheses indicate a negative impact on profit, and amounts without parentheses indicate a positive impact on profit: Result of Dropping Computers Product Line Sales revenue lost ($1,125,000) Dollar Description Amount Correct Correct Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect Incorrect d. Use the dropdown menu to select the best answer from the options below. a. The profitability of the furniture product line decreased as a result of the decrease in allocated fixed costs assigned to the furniture product line. b. The profitability of the furniture product line decreased as a result of the increase in allocated fixed costs assigned to the furniture product line. c. The profitability of the furniture product line increased as a result of the decrease in allocated fixed costs assigned to the furniture product line. d. The profitability of the furniture product line increased as a result of the increase in allocated fixed costs assigned to the furniture product line
