A-6 A value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body style. Sedanswere popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed,Crane designed models in different body styles, and those models have outpaced sedans, as follows.SalesVariable costsContribution marginFixed costsOperating income (loss)(a)Sedan$1,207,000Crane would be697,000510,000816,000$(306,000)SUV$4,210,000by $1,996,0002,214,000907,000$1,307,000Truck$3,892,0001,817,0002,075,0001,198,000$877,000Van$1,998,0001,108,000890,000The income statements above reflect the second consecutive year the sedan category has lost money. Crane is concerned aboutdropping this vehicle, however, since the company's success was originally built on it.797,000$93,000Crane believes it can save $612,000 in fixed costs associated with the sedans if it drops that vehicle category. Should the companyseriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan?

In considering whether to continue or drop a product line, the relevant costs of the product should…

A value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body style. Sedans were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed, Crane designed models in different body styles, and those models have outpaced sedans, as follows. Sales Variable costs Contribution margin Fixed costs Operating income (loss) (a) Sedan $1,207,000 697,000 510,000 816,000 $(306,000) Crane would be SUV $4,210,000 1,996,000 ✓by $ 2,214,000 907,000 $1,307,000 Truck $3,892,000 1,817,000 2,075,000 1,198,000 $877,000 Van $1,998,000 1,108,000 The income statements above reflect the second consecutive year the sedan category has lost money. Crane is concerned about dropping this vehicle, however, since the company's success was originally built on it. 890,000 797,000 $93,000 Crane believes it can save $612,000 in fixed costs associated with the sedans if it drops that vehicle category. Should the company seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan?

A value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body style. Sedans were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed, Crane designed models in different body styles, and those models have outpaced sedans, as follows. Sales Variable costs Contribution margin Fixed costs Operating income (loss) (a) Sedan $1,207,000 697,000 510,000 816,000 $(306,000) Crane would be SUV $4,210,000 1,996,000 ✓by $ 2,214,000 907,000 $1,307,000 Truck $3,892,000 1,817,000 2,075,000 1,198,000 $877,000 Van $1,998,000 1,108,000 The income statements above reflect the second consecutive year the sedan category has lost money. Crane is concerned about dropping this vehicle, however, since the company's success was originally built on it. 890,000 797,000 $93,000 Crane believes it can save $612,000 in fixed costs associated with the sedans if it drops that vehicle category. Should the company seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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