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comparative income approach,

comparative income approach,

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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By using the comparative income approach, calculate the dropping of Glass
Globe segment. Justify whether Excess Earth Company should retain or drop the segment.

Excess Earth Company manufactures two types of globe for educational purposes. Its known as: Acrylic Globe and Glass Globe. The company is currently considering to drop one of its products, Glass Globe, due to declining in their segment net operating income for several years. The sales and costs data for preceding month are given below: Product Line Acrylic Globe (RM) Glass Globe (RM) Sales 75,000 60,000 Variable Expenses: Direct Material 15,000 19,500 Direct Labour 25,500 28,600 Total Variable Cost 40,500 34,500 48,100 Contribution Margin Fixed Expenses: Wages and Salaries 11,900 9,700 8,000 Utilities 1,020 890 Depreciation - Equipment 2,000 3,500 Rental 6,000 4,000 Advertising 1,300 2,000 General Administrative 5,400 3,800 Total Fixed Expenses 25,420 22,190 Net Operating Income/ (Loss) 9,080 (10,290) Additional Information: After a few discussions with the production team, the company has revealed that depreciation of equipment cost, rental cost and general administrative cost will be unavoidable cost and be assigned to other segment in the company. The management has come up with a decision that the company should retain the segment if the net operating loss shown less than RM5,000.
Transcribed Image Text:Excess Earth Company manufactures two types of globe for educational purposes. Its known as: Acrylic Globe and Glass Globe. The company is currently considering to drop one of its products, Glass Globe, due to declining in their segment net operating income for several years. The sales and costs data for preceding month are given below: Product Line Acrylic Globe (RM) Glass Globe (RM) Sales 75,000 60,000 Variable Expenses: Direct Material 15,000 19,500 Direct Labour 25,500 28,600 Total Variable Cost 40,500 34,500 48,100 Contribution Margin Fixed Expenses: Wages and Salaries 11,900 9,700 8,000 Utilities 1,020 890 Depreciation - Equipment 2,000 3,500 Rental 6,000 4,000 Advertising 1,300 2,000 General Administrative 5,400 3,800 Total Fixed Expenses 25,420 22,190 Net Operating Income/ (Loss) 9,080 (10,290) Additional Information: After a few discussions with the production team, the company has revealed that depreciation of equipment cost, rental cost and general administrative cost will be unavoidable cost and be assigned to other segment in the company. The management has come up with a decision that the company should retain the segment if the net operating loss shown less than RM5,000.
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