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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