Aquatic Line Company (ALC) manufactures a variety of strong and durable ropes. The company manufactures all their products in a large factory located near Nephi, Utah. All the types of ropes the company manufactures can be produced using the same machines in the factory. Workers can adjust the machines to produce the specific type of rope needed for production. ALC is reviewing the profitability of its products to understand if changes need to be made to its product portfolio. Product N3 is a heavy, durable rope used to secure ships when they dock. The following is the product-line contribution margin statement for the most recent year. Revenue $ 1,150,000 Variable Costs Direct Material 600,000 Direct Labor $ 100,000 Variable Overhead $ 150,000 Shipping 85,000 Contribution Margin $ 215,000 Fixed Costs Rent Indirect Labor Marketing Operating Income 50,000 $ 115,000 $ 56,000 (6,000) For the most recent year, ALC sold 10,000 yards of N3. The sales price of N3 is $115 per yard. Management is concerned about the $6,000 operating loss for N3 and considering dropping the product line altogether and has asked you to analyze the choice to either keep N3 in the portfolio or drop the product. If ALC drops N3, ALC will lose all the sales revenue associated with N3 but also save on all of the variable costs associated with N3. N3 is produced in a factory with other products, so total rent will not decrease even if N3 is dropped. Indirect labor includes the salaries and wages of product and factory supervisors. ALC expects 80% of the indirect labor costs associated with N3 to be eliminated if N3 is dropped because some of the supervisors oversee other products besides N3 and so will remain with the company. ALC expects 75% of the marketing costs with N3 to be eliminated if N3 is dropped. Because dropping N3 will result in excess capacity in the factory, ALC has explored ways to utilize that capacity. N3 has found an outside textile manufacturing that would be willing to pay $120,000 a year to utilize ALC's factory and machines to make their own products if N3 is dropped. Finally, ALC has found that the purchase of N3 is somewhat correlated with the purchase of another rope product they manufacture, the N4. Therefore, ALC believes that the contribution margin of N4 will decrease by 12% from the previous year amount if N3 is dropped. N4 had a total of $150,000 of contribution margin last year. Nothing else about N4 would change if N3 is dropped. Should ALC drop N3? Required: Prepare a differential analysis schedule in Excel comparing the status quo and alternative conditions. See Exhibit 4.8 in the textbook for an example of a differential schedule. NOTE: your schedule will not look exactly like that example; the example is just to help you visualize the basic structure of the differential schedule. You MUST show your work. You must show how you arrive at your calculations in your cells, which you can do by using cell referencing in your calculations. You will lose points if I cannot tell where your numbers come from. As part of your submission, you will write one to two paragraphs explaining your differential analysis. You should clearly explain what is different about the two scenarios (keep N3 or drop N3) and then should identify which choice (keep or drop N3) you would suggest to the company. You will write these paragraphs in the comment section of the project submission link. Submit your Excel file to the assignment link in the Project 2 folder. This project is worth 40 points: Points breakdown: • Appropriate set up of differential analysis schedule in Excel that identifies all of revenues and costs being considered: 20 • Correct application of differential analysis to show the revenues and costs differ between the two choices under consideration: 10 • Clear and understandable paragraph(s) explaining the differential analysis: 10.

Aquatic Line Company (ALC) manufactures a variety of strong and durable ropes. The company manufactures all their products in a large factory located near Nephi, Utah. All the types of ropes the company manufactures can be produced using the same machines in the factory. Workers can adjust the machines to produce the specific type of rope needed for production. ALC is reviewing the profitability of its products to understand if changes need to be made to its product portfolio. Product N3 is a heavy, durable rope used to secure ships when they dock. The following is the product-line contribution margin statement for the most recent year. Revenue $ 1,150,000 Variable Costs Direct Material 600,000 Direct Labor $ 100,000 Variable Overhead $ 150,000 Shipping 85,000 Contribution Margin $ 215,000 Fixed Costs Rent Indirect Labor Marketing Operating Income 50,000 $ 115,000 $ 56,000 (6,000) For the most recent year, ALC sold 10,000 yards of N3. The sales price of N3 is $115 per yard. Management is concerned about the $6,000 operating loss for N3 and considering dropping the product line altogether and has asked you to analyze the choice to either keep N3 in the portfolio or drop the product. If ALC drops N3, ALC will lose all the sales revenue associated with N3 but also save on all of the variable costs associated with N3. N3 is produced in a factory with other products, so total rent will not decrease even if N3 is dropped. Indirect labor includes the salaries and wages of product and factory supervisors. ALC expects 80% of the indirect labor costs associated with N3 to be eliminated if N3 is dropped because some of the supervisors oversee other products besides N3 and so will remain with the company. ALC expects 75% of the marketing costs with N3 to be eliminated if N3 is dropped. Because dropping N3 will result in excess capacity in the factory, ALC has explored ways to utilize that capacity. N3 has found an outside textile manufacturing that would be willing to pay $120,000 a year to utilize ALC's factory and machines to make their own products if N3 is dropped. Finally, ALC has found that the purchase of N3 is somewhat correlated with the purchase of another rope product they manufacture, the N4. Therefore, ALC believes that the contribution margin of N4 will decrease by 12% from the previous year amount if N3 is dropped. N4 had a total of $150,000 of contribution margin last year. Nothing else about N4 would change if N3 is dropped. Should ALC drop N3? Required: Prepare a differential analysis schedule in Excel comparing the status quo and alternative conditions. See Exhibit 4.8 in the textbook for an example of a differential schedule. NOTE: your schedule will not look exactly like that example; the example is just to help you visualize the basic structure of the differential schedule. You MUST show your work. You must show how you arrive at your calculations in your cells, which you can do by using cell referencing in your calculations. You will lose points if I cannot tell where your numbers come from. As part of your submission, you will write one to two paragraphs explaining your differential analysis. You should clearly explain what is different about the two scenarios (keep N3 or drop N3) and then should identify which choice (keep or drop N3) you would suggest to the company. You will write these paragraphs in the comment section of the project submission link. Submit your Excel file to the assignment link in the Project 2 folder. This project is worth 40 points: Points breakdown: • Appropriate set up of differential analysis schedule in Excel that identifies all of revenues and costs being considered: 20 • Correct application of differential analysis to show the revenues and costs differ between the two choices under consideration: 10 • Clear and understandable paragraph(s) explaining the differential analysis: 10.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter2: Building Blocks Of Managerial Accounting

Section: Chapter Questions

Problem 4PB: Pocket Umbrella, Inc. is considering producing a new type of umbrella. This new pocket-sized...

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