A condensed income statement by product line for Master Energy Co. indicated the following for the Master Energy product line for the past year: Revenues and Costs Dollar Amount Sales $12,300,000 Cost of goods sold 8,250,000 Gross profit 4,250,000 Operating expenses 6,010,000 Loss from operations (1,960,000) It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 15% of the operating expenses are fixed. Because Master Energy is only one of many products, the fixed costs will not be materially affected if the product is discontinued. Prepare a differential analysis dated March 31st to determine whether Master Energy should be continued (Alternative 1) or discontinued (Alternative 2). Should Master Energy be retained? Explain.
A condensed income statement by product line for Master Energy Co. indicated the following for the Master Energy product line for the past year: Revenues and Costs Dollar Amount Sales $12,300,000 Cost of goods sold 8,250,000 Gross profit 4,250,000 Operating expenses 6,010,000 Loss from operations (1,960,000) It is estimated that 25% of the cost of goods sold represents fixed factory overhead costs and that 15% of the operating expenses are fixed. Because Master Energy is only one of many products, the fixed costs will not be materially affected if the product is discontinued. Prepare a differential analysis dated March 31st to determine whether Master Energy should be continued (Alternative 1) or discontinued (Alternative 2). Should Master Energy be retained? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
- A condensed income statement by product line for Master Energy Co. indicated the following for the Master Energy product line for the past year:
|
Revenues and Costs |
Dollar Amount |
|
Sales |
$12,300,000 |
|
Cost of goods sold |
8,250,000 |
|
Gross profit |
4,250,000 |
|
Operating expenses |
6,010,000 |
|
Loss from operations |
(1,960,000) |
It is estimated that 25% of the cost of goods sold represents fixed
- Prepare a differential analysis dated March 31st to determine whether Master Energy should be continued (Alternative 1) or discontinued (Alternative 2).
- Should Master Energy be retained? Explain.
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