Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82 percent of capacity. Worried about the company’s performance, the chief marketing officer is considering dropping the canned sweet peas. If sweet peas are dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 15 percent. Segmented income statements appear as follows: Green Beans Sweet Peas Tomatoes Sales $ 88,500 $ 128,000 $ 148,700 Variable costs 60,000 113,400 118,300 Contribution margin $ 28,500 $ 14,600 $ 30,400 Fixed costs allocated to each product line 12,580 19,840 29,360 Operating profit (loss) $ 15,920 $ (5,240) $ 1,040 Required: a. Prepare a differential cost schedule. b. Should Gilbert Canned Produce drop the sweet pea product line?
Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82 percent of capacity. Worried about the company’s performance, the chief marketing officer is considering dropping the canned sweet peas. If sweet peas are dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 15 percent. Segmented income statements appear as follows: Green Beans Sweet Peas Tomatoes Sales $ 88,500 $ 128,000 $ 148,700 Variable costs 60,000 113,400 118,300 Contribution margin $ 28,500 $ 14,600 $ 30,400 Fixed costs allocated to each product line 12,580 19,840 29,360 Operating profit (loss) $ 15,920 $ (5,240) $ 1,040 Required: a. Prepare a differential cost schedule. b. Should Gilbert Canned Produce drop the sweet pea product line?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Gilbert Canned Produce (GCP) packs and sells three varieties of canned produce: green beans; sweet peas; and tomatoes. The company is currently operating at 82 percent of capacity. Worried about the company’s performance, the chief marketing officer is considering dropping the canned sweet peas. If sweet peas are dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 15 percent.
Segmented income statements appear as follows:
| Green Beans | Sweet Peas | Tomatoes | |
|---|---|---|---|
| Sales | $ 88,500 | $ 128,000 | $ 148,700 |
| Variable costs | 60,000 | 113,400 | 118,300 |
| Contribution margin | $ 28,500 | $ 14,600 | $ 30,400 |
| Fixed costs allocated to each product line | 12,580 | 19,840 | 29,360 |
| Operating |
$ 15,920 | $ (5,240) | $ 1,040 |
Required:
a. Prepare a differential cost schedule.
b. Should Gilbert Canned Produce drop the sweet pea product line?
Transcribed Image Text:Required A Required B
Prepare a differential cost schedule. (Select option "increase" or "decrease", keeping Status Quo as the base. Select "none" if
there is no effect.)
Revenue
Less: Variable costs
Contribution margin
Less: Fixed costs
Operating profit (loss)
Status Quo
Alternative: Drop
Sweet Peas
Difference
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