Maggie's Music has three product lines: Vinyl Records, CD's, and 8-Track Tapes. Departmental operating income data for the second quarter are as follows: Maggie's MusicIncome StatementFor the Year Ending December 31, 2020 Vinyl CD 8-Track Total Sales $60,200 $105,400 $38,000 $203,600 Variable Costs $34,700 $73,500 $24,900 $133,100 Contribution Margin $25,500 $31,900 $13,100 $70,500 Fixed Costs $17,800 $19,900 $33,700 $71,400 Operating Income (Loss) $7,700 $12,000 ($20,600) ($900) 1. Managers are concerned by operating losses. They are considering dropping the 8-Track Tape product line. Fixed costs assigned to each department include only fixed costs of that department. Total Fixed cost will not change if the company stops selling 8-Track Tapes. Would you recommend the elimination of 8-Track Tapes? Give supporting computations. 8-Track Tapes Expected change in Revenue Expected change in total Variable Costs Expected change in Operating Income 2. What if Maggie's Music can avoid $25,000 of fixed costs by dropping the 8-Track Tapes? Would you recommend the elimination of 8-Track Tapes? Give supporting computations. 8-Track Tapes Expected change in Revenue Expected change in total Variable Costs Expected change in Fixed Costs Expected change in Total Costs Expected change in Operating Income

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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Maggie's Music has three product lines: Vinyl Records, CD's, and 8-Track Tapes.

Departmental operating income data for the second quarter are as follows:

Maggie's MusicIncome StatementFor the Year Ending December 31, 2020

	Vinyl	CD	8-Track	Total
Sales	$60,200	$105,400	$38,000	$203,600
Variable Costs	$34,700	$73,500	$24,900	$133,100
Contribution Margin	$25,500	$31,900	$13,100	$70,500
Fixed Costs	$17,800	$19,900	$33,700	$71,400
Operating Income (Loss)	$7,700	$12,000	($20,600)	($900)

1. Managers are concerned by operating losses. They are considering dropping the 8-Track Tape product line. Fixed costs assigned to each department include only fixed costs of that department. Total Fixed cost will not change if the company stops selling 8-Track Tapes.

Would you recommend the elimination of 8-Track Tapes? Give supporting computations.

8-Track Tapes

Expected change in Revenue
Expected change in total Variable Costs
Expected change in Operating Income

2. What if Maggie's Music can avoid $25,000 of fixed costs by dropping the 8-Track Tapes?

Would you recommend the elimination of 8-Track Tapes? Give supporting computations.

8-Track Tapes

Expected change in Revenue
Expected change in total Variable Costs
Expected change in Fixed Costs
Expected change in Total Costs
Expected change in Operating Income

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