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Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format Income statement for the bilge pump follows: Thalassines Kataskeves, S.A. Income statement-Bilge Pump For the Quarter Ended March 31 Sales Variable expenses: Variable manufacturing expenses Sales commissions $ 420,000 $ 130,000 43,000 Shipping 16,000 Total variable expenses 189,000 Contribution margin 231,000 Fixed expenses: Advertising (for the bilge pump product line) 24,000 106,000 40,000 129,000 10,000 41,000* 350,000 $ (119,000) Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories Purchasing department Total fixed expenses Net operating loss *Common costs allocated on the basis of machine-hours. +Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump?
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