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 $ 285,000 87,000 27,000 $ 171,000 1. 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 77,000 29,000 $ 106,000 $ 65,000 T-2 $ 328,000 164,000 67,000 $ 97,000 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).) % % 92,000 38,000 $ 130,000 $ (33,000) 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 $54,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
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 $ 285,000 87,000 27,000 $ 171,000 1. 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 77,000 29,000 $ 106,000 $ 65,000 T-2 $ 328,000 164,000 67,000 $ 97,000 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).) % % 92,000 38,000 $ 130,000 $ (33,000) 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 $54,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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H1.
Transcribed Image Text: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
$ 285,000
87,000
27,000
$ 171,000
1.
2. Required % increase in sales from T-1
3. Required % increase in sales from T-1
77,000
29,000
$ 106,000
$ 65,000
T-2
$ 328,000
164,000
67,000
$ 97,000
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).)
%
%
92,000
38,000
$ 130,000
$ (33,000)
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 $54,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
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