Barbour Corp, lcoated in Buffalo is a retaier of high end tech products and is known for its excellent quality and innovasion. Recently, firm conduced a relevant cost analsyis of one of its product lines that has 2 producs T-1 and T-2. The sales for T-2 aredecreasing and the purchase cost are increasing. The firm might drop T-2 and sell only T-1. Company allocates fixed costs to products on the basis of the sales revenue. When the president of company saw the income statement (see below) , he agreed that T2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next years, but the firm's cost structure will remain the same. T-1 T-2 Sales $220,000 $276,000 Variables Costs: Cost of Goods Sold $74,000 $138,000 Selling & Administrative $25,000 $54,000 Contribution Margin $121,000 $84,000 Fixed Expenses: Fixed Corporate Costs $64,000 $79,000 Fixed Selling & Administrative $16,000 $25,000 Total Fixed Cost $80,000 $104,000 Operating Income $41,000 -$20,000 Required: 1. Find the expected change in the annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the finacial loss from dropping T-2? 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed can be reduced by 45,000? (2 decima points)
Barbour Corp, lcoated in Buffalo is a retaier of high end tech products and is known for its excellent quality and innovasion. Recently, firm conduced a relevant cost analsyis of one of its product lines that has 2 producs T-1 and T-2. The sales for T-2 aredecreasing and the purchase cost are increasing. The firm might drop T-2 and sell only T-1. Company allocates fixed costs to products on the basis of the sales revenue. When the president of company saw the income statement (see below) , he agreed that T2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next years, but the firm's cost structure will remain the same. T-1 T-2 Sales $220,000 $276,000 Variables Costs: Cost of Goods Sold $74,000 $138,000 Selling & Administrative $25,000 $54,000 Contribution Margin $121,000 $84,000 Fixed Expenses: Fixed Corporate Costs $64,000 $79,000 Fixed Selling & Administrative $16,000 $25,000 Total Fixed Cost $80,000 $104,000 Operating Income $41,000 -$20,000 Required: 1. Find the expected change in the annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the finacial loss from dropping T-2? 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed can be reduced by 45,000? (2 decima points)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Barbour Corp, lcoated in Buffalo is a retaier of high end tech products and is known for its excellent quality and innovasion. Recently, firm conduced a relevant cost analsyis of one of its product lines that has 2 producs T-1 and T-2. The sales for T-2 aredecreasing and the purchase cost are increasing. The firm might drop T-2 and sell only T-1.
Company allocates fixed costs to products on the basis of the sales revenue. When the president of company saw the income statement (see below) , he agreed that T2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next years, but the firm's cost structure will remain the same.
| T-1 | T-2 | |
| Sales | $220,000 | $276,000 |
| Variables Costs: | ||
| Cost of Goods Sold | $74,000 | $138,000 |
| Selling & Administrative | $25,000 | $54,000 |
| Contribution Margin | $121,000 | $84,000 |
| Fixed Expenses: | ||
| Fixed Corporate Costs | $64,000 | $79,000 |
| Fixed Selling & Administrative | $16,000 | $25,000 |
| Total Fixed Cost | $80,000 | $104,000 |
| Operating Income | $41,000 | -$20,000 |
Required:
1. Find the expected change in the annual operating income by dropping T-2 and selling only T-1.
2. By what percentage would sales from T-1 have to increase in order to make up the finacial loss from dropping T-2?
3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed can be reduced by 45,000? (2 decima points)
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