comparative income approach,
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
By using the comparative income approach, calculate the dropping of Glass
Globe segment. Justify whether Excess Earth Company should retain or drop the segment.

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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