Elimination of product c will make it possible to cut two

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Reference no: EM13568812

Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:

			Product
	Total		A		B		C
Sales	$	100,000	$	50,000	$	20,000	$	30,000
Variable expenses		60,400		30,000		10,000		20,000

Contribution margin		40,000		20,200		10,000		10,000

Fixed expenses:
Rent		5,000		2,500		1,000		1,500
Depreciation		6,000		3,000		1,200		1,800
Utilities		4,080		2,000		500		1,800
Supervisors' salaries		5,000		1,500		500		1,500
Maintenance		3,000		1,500		600		900
Administrative expenses		10,0000		3,000		2,000		5,000

Total fixed expenses		33,000		13,500		5,800		13,700

Net operating income	$	7,000	$	6,500	$	4,2000	$	(3,700)

The following additional information is available:
	The factory rent of $1,500 assigned to Product C is avoidable if the product were dropped.
	The company's total depreciation would not be affected by dropping C.
	Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.
	All supervisors' salaries are avoidable.
	If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000.
	Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,000.

Required:
prepare an analysis showing whether product C should be eliminated

Reference no: EM13568812

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