a. What is the effect on income if Product P is discontinued? Note: Do not use a negative sign with your answer. Dropping the segment would result in an b. What is the effect on income if Product R is discontinued? Note: Do not use a negative sign with your answer. Dropping the segment would result in an = $ 0 ÷ $ 0 c. What is the effect on income if Product R is discontinued and a consequent loss of customers causes a decrease in sales of 200 units of Product Q? Note: Do not use a negative sign with your answer. Dropping the segment would result in an = $ 0 d. What is the effect on income if the sales price of product R is increased to $8.00 with a decrease in the number of units sold to 1,500? Note: Do not use a negative sign with your answer. Dropping the segment would result in an = $ 0 e. Janet Poole, marketing manager at Bardwell Company, approaches Pamela Bardwell, the company's president. She proposes that Bardwell Company drop production of Product S to produce Product T, which is made on the same production equipment. Product T has a selling price of $14.00, variable manufacturing costs of $9.00, and variable selling expenses of $2.46. Poole estimates that 2,100 units of Product T could be sold annually; she feels that this would be good for the company, as total sales revenue will increase by $7,400 and Product T would be replacing a product that is currently losing money for the company. Poole also believes that this would be good for the morale of the sales department, as total sales commissions will increase. What is the effect on income if the company drops Product S and produces Product T instead? Note: Do not use a negative sign with your answer. Dropping the segment would result in an ÷ $ 0

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing

Section: Chapter Questions

Problem 6DQ: What are two disadvantages of ROI? Explain how each can lead to decreased profitability.

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Scarce resource; discontinued product lines; negative contribution margin
The officers of Bardwell Company are reviewing the profitability of the company’s four products and the potential effects of several proposals for varying the product mix. The following is an excerpt from the income statement and other data.

	Total	Product P	Product Q	Product R	Product S
Sales	$62,600	$10,000	$18,000	$12,600	$22,000
Cost of goods sold	(44,274)	(4,750)	(7,056)	(13,968)	(18,500)
Gross profit	$18,326	$5,250	$10,944	$(1,368)	$3,500
Operating expenses	(12,004)	(1,990)	(2,968)	(2,826)	(4,220)
Income before taxes	6,322	$3,260	$7,976	$(4,194)	$(720)
Units sold		1,000	1,200	1,800	2,000
Sales price per unit		$10.00	$15.00	$7.00	$11.00
Variable cost of goods sold		2.50	3.00	6.50	6.00
Variable operating expenses		1.17	1.25	1.00	1.20

Each of the following proposals is to be considered independently of the other proposals. Consider only the product changes stated in each proposal; the activity of the other proposals remains stable.

a. What is the effect on income if Product P is discontinued?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an
b. What is the effect on income if Product R is discontinued?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an
=
$ 0
÷
$ 0
c. What is the effect on income if Product R is discontinued and a consequent loss of customers causes a decrease in sales of 200 units of Product Q?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an
= $ 0
d. What is the effect on income if the sales price of product R is increased to $8.00 with a decrease in the number of units sold to 1,500?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an
= $ 0
e. Janet Poole, marketing manager at Bardwell Company, approaches Pamela Bardwell, the company's president. She proposes that Bardwell Company drop production
of Product S to produce Product T, which is made on the same production equipment. Product T has a selling price of $14.00, variable manufacturing costs of $9.00, and
variable selling expenses of $2.46. Poole estimates that 2,100 units of Product T could be sold annually; she feels that this would be good for the company, as total sales
revenue will increase by $7,400 and Product T would be replacing a product that is currently losing money for the company. Poole also believes that this would be good
for the morale of the sales department, as total sales commissions will increase.
What is the effect on income if the company drops Product S and produces Product T instead?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an
÷ $ 0

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