Bob Co. has two departments: QR, and XY, which produce high quality hockey sticks. The company has provide the following information for the month of April: QR XY Total Sales $ 9,000,000 $ 2,200,000 $ 11,200,000 Variable Costs 4,500,000 950,000 5,450,000 Contribution Margin 4,500,000 1,250,000 5,750,000 Fixed Expenses 3,500,000 1,300,000 50,000 4,800,000 Operating Income (Loss) 1,000,000 - 950,000 Bob Co. has conducted an analysis of the costs involving XY after a poor performance in April and it was determined that the following would occur if the XY department ceased operations: 1. $450,000 in fixed expenses of XY would be eliminated by ceasing operations. The remaining $850,000 are sunk costs that cannot be recovered. 2. The sales in the QR department would increase 13% if XY were to cease operations. REQUIRED A) What would be the effect on operating income if the XY product line is dropped? B) Should the XY product line be dropped? Briefly explain. C) Unrelated to parts A & B of this question, Bob Co. is considering using the excess wood used in the production of their hockey sticks to create shooting targets. Currently, the company sells the additional wood for $6 per kilogram. If processed into shooting targets, it would cost an additional $5 per unit to process and would use 2kg of wood to create. These shooting targets could sell for $25 per target. Currently, the company has 1,000 kilograms of wood that they sell. Should Bob make these new shooting targets?
Bob Co. has two departments: QR, and XY, which produce high quality hockey sticks. The company has provide the following information for the month of April: QR XY Total Sales $ 9,000,000 $ 2,200,000 $ 11,200,000 Variable Costs 4,500,000 950,000 5,450,000 Contribution Margin 4,500,000 1,250,000 5,750,000 Fixed Expenses 3,500,000 1,300,000 50,000 4,800,000 Operating Income (Loss) 1,000,000 - 950,000 Bob Co. has conducted an analysis of the costs involving XY after a poor performance in April and it was determined that the following would occur if the XY department ceased operations: 1. $450,000 in fixed expenses of XY would be eliminated by ceasing operations. The remaining $850,000 are sunk costs that cannot be recovered. 2. The sales in the QR department would increase 13% if XY were to cease operations. REQUIRED A) What would be the effect on operating income if the XY product line is dropped? B) Should the XY product line be dropped? Briefly explain. C) Unrelated to parts A & B of this question, Bob Co. is considering using the excess wood used in the production of their hockey sticks to create shooting targets. Currently, the company sells the additional wood for $6 per kilogram. If processed into shooting targets, it would cost an additional $5 per unit to process and would use 2kg of wood to create. These shooting targets could sell for $25 per target. Currently, the company has 1,000 kilograms of wood that they sell. Should Bob make these new shooting targets?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Bob Co. has two departments: QR, and XY, which produce high quality hockey sticks. The company has provide the following
information for the month of April:
QR
XY
Total
Sales
$
9,000,000 $
2,200,000 $
11,200,000
Variable Costs
4,500,000
950,000
5,450,000
Contribution Margin
4,500,000
1,250,000
5,750,000
Fixed Expenses
3,500,000
1,300,000
4,800,000
Operating Income (Loss)
1,000,000 -
50,000
950,000
Bob Co. has conducted an analysis of the costs involving XY after a poor performance in April and it was determined that the
following would occur if the XY department ceased operations:
1. $450,000 in fixed expenses of XY would be eliminated by ceasing operations. The remaining $850,000 are sunk costs that
cannot be recovered.
2. The sales in the QR department would increase 13% if XY were to cease operations.
REQUIRED
A) What would be the effect on operating income if the XY product line is dropped?
B) Should the XY product line be dropped? Briefly explain.
C) Unrelated to parts A & B of this question, Bob Co. is considering using the excess wood used in the production of their
hockey sticks to create shooting targets. Currently, the company sells the additional wood for $6 per kilogram.
If processed into shooting targets, it would cost an additional $5 per unit to process and would use 2kg of wood to create.
These shooting targets could sell for $25 per target. Currently, the company has 1,000 kilograms of wood that they sell.
Should Bob make these new shooting targets?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education