Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose Smithers Company is considering discontinuing its organic dried fruit product line. Assume that during the past year, the organic dried fruit's product line

image text in transcribedimage text in transcribedimage text in transcribed

Suppose Smithers Company is considering discontinuing its organic dried fruit product line. Assume that during the past year, the organic dried fruit's product line income statement showed the following: (Click the icon for additional information) (Click the icon to view the income statement data) If the company decides to discontinue the product line, what will happen to the company's operating income? Should Smithers Company discontinue the organic dried fruit product line? www Begin by preparing a contribution margin income statement for the organic dried fruit's product line. (Use a minus sign or parentheses to enter a loss) Sales revenue Less Contribution margin Less Operating income (loss) Data table 1 Sales revenue A 2 Less: Cost of goods sold 3 Gross profit 4 Less: Operating expenses 5 Operating income (loss) B $ 5,200,000 6,500,000 (1,300,000) 1,500,000 $ (2,800,000) Print Done - X More info Oss) Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the organic dried fruit line is just one of the company's fruit operations, only $750,000 of direct fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by the company. Print Done - X

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Comparative international accounting

Authors: Christopher nobes, Robert parker

9th Edition

273703579, 978-0273703570

More Books

Students also viewed these Accounting questions