KEEP OR DROP A SEGMENT 4. BABY DRAGON MERCHANDISING COMPANY has products, A and B. A recent monthly income statement for the company follows: PRODUCT A 150,000 P3,000,000 PRODUCT B 100,000 P1,000,000 400.000 600,000 TOTAL No. of units sold 250,000 P4,000,000 Sales Less: Variable expenses Contribution Margin Less: Fixed expenses Net operating income (loss) A study indicates that P340,000 of the fixed expenses being charged to PRODDUCT B are sunk costs or allocated costs that will continue even if B is dropped. REQUIREMENTS: Answer each of the following questions independently, unless otherwise instructed. 900.000 1.300.000 2,700,000 2,100,000 1.400.000 P 700,000 2.200.000 800.000 P 500,000 P(200,000) of a, (e) The company is considering increasing the sales price of B is increased to P15 with a decrease in the number of units scld to 90,000. What is the effect on income of the proposed action? (f) Part of the plant in which A is produced can easily be adapted to the production of B, but changes in quantities may make changes in sales prices advisable. If production of A is reduced to 100,000 units (to be sold at P25 each) and production of B is increased by 50,000 units (to be sold at P8.00 each), the total effect on income will be?
KEEP OR DROP A SEGMENT 4. BABY DRAGON MERCHANDISING COMPANY has products, A and B. A recent monthly income statement for the company follows: PRODUCT A 150,000 P3,000,000 PRODUCT B 100,000 P1,000,000 400.000 600,000 TOTAL No. of units sold 250,000 P4,000,000 Sales Less: Variable expenses Contribution Margin Less: Fixed expenses Net operating income (loss) A study indicates that P340,000 of the fixed expenses being charged to PRODDUCT B are sunk costs or allocated costs that will continue even if B is dropped. REQUIREMENTS: Answer each of the following questions independently, unless otherwise instructed. 900.000 1.300.000 2,700,000 2,100,000 1.400.000 P 700,000 2.200.000 800.000 P 500,000 P(200,000) of a, (e) The company is considering increasing the sales price of B is increased to P15 with a decrease in the number of units scld to 90,000. What is the effect on income of the proposed action? (f) Part of the plant in which A is produced can easily be adapted to the production of B, but changes in quantities may make changes in sales prices advisable. If production of A is reduced to 100,000 units (to be sold at P25 each) and production of B is increased by 50,000 units (to be sold at P8.00 each), the total effect on income will be?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:KEEP OR DROP A SEGMENT
BABY DRAGON MERCHANDISING COMPANY has products, A and B. A recent monthly income statement
for the company follows:
4.
TOTAL
250,000
P4,000,000
PRODUCT A
150,000
P3,000,000
PRODUCT B
100,000
P1,000,000
400.000
600,000
No. of units sold
Sales
Less: Variable expenses
Contribution Margin
Less: Fixed expenses
Net operating income (loss)
A study indicates that P340,000 of the fixed expenses being charged to PRODDUCT B are sunk costs or
allocated costs that will continue even if B is dropped.
REQUIREMENTS: Answer each of the following questions independently, unless otherwise instructed.
1.300.000
900.000
2,700,000
2,100,000
1.400.000
P 700,000
800.000
2.200.000
P 500,000
P(200,000)
of
a,
(e) The company is considering increasing the sales price of B is increased to P15 with a decrease in
the number of units sold to 90,000. What is the effect on income of the proposed action?
(f)
Part of the plant in which A is produced can easily be adapted to the production of B, but changes
in quantities may make changes in sales prices advisable. If production of A is reduced to 100,000
units (to be sold at P25 each) and production of B is increased by 50,000 units (to be sold at
P8.00 each), the total effect on income will be?
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