Question 3 (22 marks) An accountant has prepared the following product-line income statement for the year: Product Total z 5,000 4,000 4,000 Y No of units sold S 200,000 $ 100,000 $ 120,000 60,000 80,000 40,000 40,000 $ 20,000 20,000 60,000 40,000 20,000 Sales Variable expenses Contribution margin Fixed expenses Rent Depreciation Utilities Supervisors' salaries Maintenance Administrative expenses Total fixed expenses Net operating income (loss) 10,000 12,000 8,000 10,000 6,000 20,000 66,000 14,000 5,000 6,000 4,000 3,000 3,000 6,000 27,000 13,000 2,000 2,400 1,000 1,000 1,200 4,000 11,600 8,400 3,000 3,600 3,000 6,000 1,800 10,000 27,400 (7400) The following additional information is available: The factory rent of $3,000 assigned to Product Z is avoidable if the product were dropped. The company's total depreciation would not be affected by dropping Z. Eliminating Product Z will reduce the monthly utility bill from $3,000 to $1,600. All supervisors' salaries are avoidable. If Product Z is discontinued, the maintenance department will be able to reduce monthly expenses from a total of $6,000 to $4,000; and two persons from the administrative staff can be cut, with their combined salaries total $3,000. Required: a) Compute the breakeven sales dollars of each product assuming the same sales mix remains constant (6 marks) b) Prepare an analysis showing whether Product Z should be eliminated. The amount of change to net income should be computed. (8 marks) c) Assume the current demand of each product is same as the sales volume the company has for the year. Below is the machine processing time required for each product. Product X Y Z Machine processing time in hours 2 i. How many units should the company produce for each product if there is a constraint of only 24,000 hours of machine processing time in the year. (6 marks) ii. Compute the highest possible net income earned by the company. (2 marks) Page 6 of 8