Exercise 11-27 (Algo) Product-Line Profitability Analysis [LO 11-5] 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. Fixed expenses: T-1 $ 280,000 86,000 12,000 $ 182,000 76,000 28,000 T-2 $ 324,000 162,000 66,000 $ 96,000 91,000 37,000 Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: $ 104,000 $ 128,000 $ 78,000 $ (32,000) 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 (l.e. 0.1234 should be entered as 12.34).) 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 $52,500? (Enter your answer as a percentage rounded to 2 decimal places (1.e. 0.1234 should be entered as 12.34).) 1. Net income on discontinuing T-2 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 $ 32,000 17.58 % 25.00 %
Exercise 11-27 (Algo) Product-Line Profitability Analysis [LO 11-5] 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. Fixed expenses: T-1 $ 280,000 86,000 12,000 $ 182,000 76,000 28,000 T-2 $ 324,000 162,000 66,000 $ 96,000 91,000 37,000 Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: $ 104,000 $ 128,000 $ 78,000 $ (32,000) 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 (l.e. 0.1234 should be entered as 12.34).) 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 $52,500? (Enter your answer as a percentage rounded to 2 decimal places (1.e. 0.1234 should be entered as 12.34).) 1. Net income on discontinuing T-2 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 $ 32,000 17.58 % 25.00 %
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 11-27 (Algo) Product-Line Profitability Analysis [LO 11-5]
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
Required:
T-1
$ 280,000
86,000
12,000
$ 182,000
76,000
28,000
$ 104,000
T-2
$ 324,000
162,000
66,000
$ 96,000
91,000
37,000
$ 128,000
$ 78,000
$ (32,000)
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 (l.e. 0.1234 should be entered as 12.34).)
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 $52,500? (Enter your answer as a percentage rounded to 2 decimal places (1.e. 0.1234 should be entered as 12.34).)
1. Net income on discontinuing T-2
2. Required % increase in sales from T-1
3. Required % increase in sales from T-1
$
32,000
17.58 %
25.00 %](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F77ff2a96-543b-4770-bd8f-7777014afad2%2F96a439d0-4c80-4d2e-88f7-839031134584%2F156pzj6_processed.png&w=3840&q=75)
Transcribed Image Text:Exercise 11-27 (Algo) Product-Line Profitability Analysis [LO 11-5]
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
Required:
T-1
$ 280,000
86,000
12,000
$ 182,000
76,000
28,000
$ 104,000
T-2
$ 324,000
162,000
66,000
$ 96,000
91,000
37,000
$ 128,000
$ 78,000
$ (32,000)
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 (l.e. 0.1234 should be entered as 12.34).)
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 $52,500? (Enter your answer as a percentage rounded to 2 decimal places (1.e. 0.1234 should be entered as 12.34).)
1. Net income on discontinuing T-2
2. Required % increase in sales from T-1
3. Required % increase in sales from T-1
$
32,000
17.58 %
25.00 %
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Step 1: Introduction of variable costs, fixed costs and contribution margin :
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VIEWStep 3: Requirement 2) The required percentage increase in order to make up the financial loss :
VIEWStep 4: Requirement 3) required percentage increase in sales, if fixed cost can be reduced by $52,500 :
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