CONTINUE OR DISCONTINUE OPERATING A BUSINESS SEGMENTBeth Neri Enterprises sells three products, Skinny, Bony and Thinny. Beth, the proprietor, isconcerned about the losses incurred by Thinny, and is considering to discontinue its production andsales.Sales and costs data about Beth Neri's three products are as follows:SkinnyP 5BonyP 7ThinnyP 9TotalP 21SalesVariable cost per unitContribution margin12429.Fixed cost per unitProfit (loss) per unitР 2P 2P( 1)P 3Fixed costs are allocated among the three products based on the floor area they occupy.Beth is thinking that if she would eliminate Thinny, its loss of P1 per unit would likewise beeliminated thereby increasing her total profit per unit from P3 [P2 + P2 - P1] to P4 [P2 + P2]. Is Beth'sanalysis correct?

Under keep or drop decision if the savings in cost is more than the revenue lost then the entity…

CONTINUE OR DISCONTINUE OPERATING A BUSINESS SEGMENT Beth Neri Enterprises sells three products, Skinny, Bony and Thinny. Beth, the proprietor, is concerned about the losses incurred by Thinny, and is considering to discontinue its production and sales. Sales and costs data about Beth Neri's three products are as follows: Skinny P 5 2 Bony P 7 Thinny P 9 7 Total P 21 12 Sales Variable cost per unit Contribution margin Fixed cost per unit Profit (loss) per unit 3 4 2 9 P 2 P 2 6 P 3 P( 1) Fixed costs are allocated among the three products based on the floor area they occupy. Beth is thinking that if she would eliminate Thinny, its loss of P1 per unit would likewise be eliminated thereby increasing her total profit per unit from P3 [P2 + P2 - P1] to P4 [P2 + P2]. Is Beth's analysis correct?

CONTINUE OR DISCONTINUE OPERATING A BUSINESS SEGMENT Beth Neri Enterprises sells three products, Skinny, Bony and Thinny. Beth, the proprietor, is concerned about the losses incurred by Thinny, and is considering to discontinue its production and sales. Sales and costs data about Beth Neri's three products are as follows: Skinny P 5 2 Bony P 7 Thinny P 9 7 Total P 21 12 Sales Variable cost per unit Contribution margin Fixed cost per unit Profit (loss) per unit 3 4 2 9 P 2 P 2 6 P 3 P( 1) Fixed costs are allocated among the three products based on the floor area they occupy. Beth is thinking that if she would eliminate Thinny, its loss of P1 per unit would likewise be eliminated thereby increasing her total profit per unit from P3 [P2 + P2 - P1] to P4 [P2 + P2]. Is Beth's analysis correct?

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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Keep-or-Drop Decision Charlevoix Company produces three products: Torch, Elk, and Walloon. A segmented income statement, with amounts given in thousands, follows: Line Item Description Torch Elk Walloon Total Sales revenue $1,280 $185 $315 $1,780 Less: Variable expenses 1,115 45 252 1,412 Contribution margin $165 $140 $63 $368 Less direct fixed expenses: Depreciation 50 15 10 75 Advertising 95 85 76 256 Segment margin $20 $40 $(23) $37 Direct fixed expenses consist of depreciation and advertising. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that, each of the three products has a different marketing campaign whose advertising would be eliminated if the associated product were dropped. Assume that 30% of the Torch customers choose to buy from Charlevoix because it offers a full range of products, including Walloon. If Walloon were no longer available from Charlevoix, these customers…
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