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XYZ has been experiencing losses on its Widget line for several years. Here is the most recent contribution margin statement: Sales 850,000 VC: Variable Manufacturing
XYZ has been experiencing losses on its Widget line for several years. Here is the most recent contribution margin statement:
Sales | 850,000 | |
VC: | ||
Variable Manufacturing | 330,000 | |
Sales Commissions | 42,000 | |
Shipping | 18,000 | |
Total VC | 390,000 | |
Contribution Margin | 460,000 | |
FC: | ||
Advertising (traceable) | 270,000 | |
Depreciation (no resale) | 80,000 | |
General Factory OH | 105,000 | |
Product Manger Salary | 32,000 | |
Insurance on Inventory | 8,000 | |
Purchasing Department | 45,000 | |
Total FC | 540,000 | |
Net Op Loss | (80,000) |
The general factory overhead is a common cost allocated on the basis of machine hours
The Purchasing department is a common cost allocated on the basis of sales dollars.
Insurance is on manufactured inventory, purchased inventory will be just in time.
How much costs will persist (i.e. is sunk), regardless of the decision to drop this line
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