Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2 The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income T-1 $ 265,000 83,000 23,000 $ 159,000 73,000 25,000 $ 98,000 T-2 $ 312,000 156,000 63,000 $93,000 88,000 34,000 $122,000 $ 61,000 $ (29,000) Required: 1. Find the expected change in 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 financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $48,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. 2. Required % increase in sales from T-1 % 3. Required % increase in sales from T-1 %
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2 The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income T-1 $ 265,000 83,000 23,000 $ 159,000 73,000 25,000 $ 98,000 T-2 $ 312,000 156,000 63,000 $93,000 88,000 34,000 $122,000 $ 61,000 $ (29,000) Required: 1. Find the expected change in 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 financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $48,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. 2. Required % increase in sales from T-1 % 3. Required % increase in sales from T-1 %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and
innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products. T-1 and T-2. The
sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1.
Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements
(see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but
the firm's cost structure will remain the same.
ed
Sales
Variable costs:
Cost of goods sold
Selling & administrative
Contribution margin
k
Fixed expenses:
ces
Fixed corporate costs
Fixed selling and administrative
Total fixed expenses
Operating income
Required:
T-1
$ 265,000
83,000
23,000
$ 159,000
73,000
25,000
T-2
$ 312,000
156,000
63,000
$ 93,000
88,000
34,000
$ 122,000
$ 98,000
$ 61,000
$ (29,000)
1. Find the expected change in 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 financial loss from dropping T-2? (Enter your
answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be
reduced by $48,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
1.
2. Required % increase in sales from T-1
%
3. Required % increase in sales from T-1
%
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Step 1: Relevant cost analysis conducted by Barbour Corporation for its product lines T-1 and T-2
VIEWStep 2: Requirement 1). To find the expected change in annual operating income
VIEWStep 3: Requirement 2).Percentage Increase in Sales from T-1.
VIEWStep 4: Requirement 3). Required Percentage Increase in Sales from T-1 with Reduced Fixed Costs
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