I. Keep or Drop Dexter Company makes three types of GPS devices: Basic GPS model, Runner's GPS and Chart Plotter. The company is considering dropping the Basic GPS line and keeping the Runner's GPS and Chart Plotter. Segmented income statement are as follows: Basic GPS Runner's GPS Chart Plotter $ 450,000 Total Sales $ 980,000 $1,670,000 $ 3,100,000 Less variable costs (324,000) (372,000) (601,600) (1,297,600) Contribution margin $ 126,000 $ 608,000 $1,068,400 $ 1,802,400 Less direct fixed costs: Advertisings (85,000) (124,000) (130,000) (339,000) Supervision (60,000) (115,000) (135,000) (310,000) $ (19,000) $ 369,000 $ 803.400 $ 1,153,400 Product margin Less common fixed 915,000 expenses Operating income $ 238.400 Required: a. What are the alternatives to be considered? b. List the relevant benefits and costs for each alternative. c. Which alternative is more cost effective and by how much? d. What if dropping the Basic GPS line would mean a 10 percent loss of volume for the Runner's GPS device and a 2 percent loss in volume for the Chart Plotter, which alternative would be more cost effective and by how much?

I. Keep or Drop Dexter Company makes three types of GPS devices: Basic GPS model, Runner's GPS and Chart Plotter. The company is considering dropping the Basic GPS line and keeping the Runner's GPS and Chart Plotter. Segmented income statement are as follows: Basic GPS Runner's GPS Chart Plotter $ 450,000 Total Sales $ 980,000 $1,670,000 $ 3,100,000 Less variable costs (324,000) (372,000) (601,600) (1,297,600) Contribution margin $ 126,000 $ 608,000 $1,068,400 $ 1,802,400 Less direct fixed costs: Advertisings (85,000) (124,000) (130,000) (339,000) Supervision (60,000) (115,000) (135,000) (310,000) $ (19,000) $ 369,000 $ 803.400 $ 1,153,400 Product margin Less common fixed 915,000 expenses Operating income $ 238.400 Required: a. What are the alternatives to be considered? b. List the relevant benefits and costs for each alternative. c. Which alternative is more cost effective and by how much? d. What if dropping the Basic GPS line would mean a 10 percent loss of volume for the Runner's GPS device and a 2 percent loss in volume for the Chart Plotter, which alternative would be more cost effective and by how much?

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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