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The cost accountant for Bruin Manufacturing, Inc., has prepared the following analysis of the profitability of each of the firms three products. All fixed costs

The cost accountant for Bruin Manufacturing, Inc., has prepared the following analysis of the profitability of each of the firms three products. All fixed costs are allocated costs and are not related to specific products.

Item 101 Item 102 Item 103 Total
Sales $ 66,000.00 $ 68,800.00 $ 91,700.00 $ 226,500.00
Cost of goods sold 31,200.00 35,300.00 68,600.00 135,100.00
Gross profit $ 34,800.00 $ 33,500.00 $ 23,100.00 $ 91,400.00
Operating expenses 13,400.00 11,800.00 26,200.00 51,400.00
Net income (loss) $ 21,400.00 $ 21,700.00 $ (3,100.00 ) $ 40,000.00
Units sold 1,320 1,720 2,620
Sales price per unit $ 50 $ 40 $ 35
Variable cost of goods
sold per unit $ 22 $ 18 $ 23
Variable operating
expenses per unit $ 6 $ 5 $ 7

Management has been considering several options concerning the companys product mix to reduce or eliminate the loss on Item 103. The companys president has asked you to prepare an analysis of the effects on the companys net income before taxes for each of the following proposals. Consider each proposal independently; no changes would occur in the other products.

Required:

  1. Calculate the net income or loss if item 103 is dropped.
  2. Calculate the net income or loss for Item 103 if the sale price of Item 103 is increased to $40. Marketing analysis indicates that the increase in price will cause a decrease in sales of Item 103 to 1,055 units.
  3. Calculate the net income or loss for Item 104 if Item 103 is dropped and the resulting plant capacity is used to produce a new product, Item 104. The departments marketing studies estimate that 1,520 units could be sold at $35 each. The variable costs and expenses per unit of Item 104 are estimated to be $11 per unit manufacturing cost and $10 per unit for operating expenses.

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