Knowledge Check 01Which of the following factors should be considered when deciding whether to keep a product line or drop it? (Select all that apply)Check All That ApplyOpportunity costs of using the production facility currently being used for the product lineRevenues generated by the product lineVariable costs incurred in manufacturing the productDirect fixed costs associated with the product lineCommon fixed costs allocated to the product lineResearch and development costs spent on designing the product line Knowledge Check 02Villatech, Inc. produces three models of tablet computers-the J-touch, B-touch, and L-touch. The company is considering eliminating the B-touch model because it has been incurring operating losses for the past few years. The J-touch and L-touch have impressive sales records and have thepotential to grow in the future.Sale RevenueLess: Variable costsContribution marginLess: Direct fixed costsSegment marginLess: Common fixed costs.Net operating income (loss)The management expects that the elimination of the B-touch would increase sales of the L-touch by 40%. If Villatech eliminates the B-touch, its net operating income willMultiple ChoiceO Increase by $32,000 IncreaseDecrease by $125,000Increase by $27,000Increase by $5,000Total$2,000,000J-touch L-touch B-touch$800,000 $700,000 $500,000450,000320,000 270,000 1,040,000$350,000 $380,000 $230,000 $ 960,00070,000 55,000 105,000 230,000$280,000 $325,000 $125,000 $ 730,000208,000 182,000 130,000520,000210,00072,000 $143,000 $(5,000) $Decrease by $152,000

When deciding whether to keep or drop a product line, various factors should be considered. The…

Answered: Less: Variable costs. Contribution…

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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Wiles Inc.'s unit selling price is $40, the unit variable costs is $30, fixed costs are $80,000, and current sales are 10,000 units. How much would operating income change if sales increase by 4,000 units? a. $100,000 increase b. $40,000 increase c. $80,000 decrease d. $60,000 decrease
1. If Department B is able to reduce its operating assets by $100,000, Department B's new ROI would be 2. If Department A is able to increase its controllable margin by $60,000 as a result of reducing variable costs, Department A's new ROI would be
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Jake Company has three product lines, one of which has the following results: Sales P215,000 Variable expenses 125,000 Contribution margin 90,000 Fixed expenses 130,000 Net loss P (40,000) If this product line is eliminated, 60% of the fixed expenses will be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, how much will the company's net income or loss be?
Hh2. Account
Assume a retailing company has two departments-Department A and Department B. The company's most recent contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Multiple Choice O The company says that $110,000 of the fixed expenses being charged to Department B are sunk costs or allocated costs that will continue if the segment is discontinued. However, if Department B is discontinued the sales in Department A will drop by 12%. What is the financial advantage (disadvantage) of discontinuing Department B? O O O $(148,000) $(152,000) $(147,600) Total $ 800,000 320,000 $(127,600) 480,000 400,000 $ 80,000 Department A Department B $ 350,000 $ 450,000 120,000 200,000 230,000 250,000 260,000 140,000 $ 90,000 $ (10,000)
e. 5,000 XYZ company is studying the profitability of a change in operation and has gathered the following information. Current Operation: Fixed Costs: $38,000, Selling Price: $16, Variable Cost: $10, and Sales (Units): 9,000. Anticipated Operation: Fixed Costs: $48,000, Selling Price: $22, Variable Cost: $12, and Sales (Units): 6,000. Should XYZ company make the change? Select one: O a. No, because sales will drop by 3,000 units. Ob. It is impossible to judge because additional information is needed. Oc. No, because the company will be worse off by $4,000. O d. Yes, the company will be better off by $6,000. Oe. No, because the company will be worse off by $22000. Next page
A. Determine the missing amounts S.No Unit Selling Price Unit Variable Cost Contribution Margin per unit Contribution Margin Ratio 1 2 3 550 1500 (e) 370 (c) (f) (a) 600 900 (b) (d) 30 B. For Al Farabi Company, variable costs are 75% of sales, and fixed costs are $210,000.Management’snet income goal is $70,000. Compute the required sales needed to achieve management’s target net income of $70,000. (Use the mathematical equation approach.) C. Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.
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A company has three product lines, one of which reflects the following results: Sales Variable expenses Contribution margin Fixed expenses Net loss O decrease by $4000. O increase by $4000 decrease by $82000 $181000 99000 O increase by $48000 82000 130000 If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company's net income will $ (48000)
Pepper’s Automotive (see Brief Exercise 18-19) has further analyzed the exhaust systemdivision into three products: exhaust pipes, intake valves, and intake pipes. The incomestatement is available below.If intake valves were dropped, what would be the change in profits in the short run and thelong run, respectively?[LO 18-4]Exhaust Pipes Intake Valves Intake PipesNet revenues $500,000 $300,000 $200,000Variable costs 50,000 150,000 100,000Contribution margin 450,000 150,000 100,000Controllable fixed costs 50,000 50,000 0Controllable margin 400,000 100,000 100,000Noncontrollable fixed costs 100,000 150,000 50,000Contribution by profit center $300,000 $ (50,000) $ 50,000a. Short run: $100,000 decrease; long run: $50,000 increaseb. Short run: $150,000 increase; long run: $50,000 decreasec. Short run: $100,000 increase; long run: $50,000 decreased. Short run: $50,000 increase; long run: $100,000 decrease

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