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nnovation. Recently, the firm conducted a relevant cost analysis of one of its product lines tha ales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 an Barbour allocates fixed costs to products on the basis of sales revenue. When the president o see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected he firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses operating income T-1 $ 210,000 T-2 $ 268,000 72,000 22,500 $ 115,500 62,000 14,000 $ 76,000 134,000 52,000 $ 82,000 77,000 23,000 $ 100,000 $ 39,500 $ (18,000)

nnovation. Recently, the firm conducted a relevant cost analysis of one of its product lines tha ales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 an Barbour allocates fixed costs to products on the basis of sales revenue. When the president o see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected he firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses operating income T-1 $ 210,000 T-2 $ 268,000 72,000 22,500 $ 115,500 62,000 14,000 $ 76,000 134,000 52,000 $ 82,000 77,000 23,000 $ 100,000 $ 39,500 $ (18,000)

FINANCIAL ACCOUNTING
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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Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 210,000 T-2 $ 268,000 72,000 22,500 $ 115,500 134,000 52,000 $ 82,000 77,000 23,000 62,000 14,000 $ 76,000 $ 100,000 $ 39,500 $ (18,000) 1. Find the expected change in annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (l.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $42,500? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. 2. Required % increase in sales from T-1 % 3. Required % increase in sales from T-1 %
Transcribed Image Text:Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: T-1 $ 210,000 T-2 $ 268,000 72,000 22,500 $ 115,500 134,000 52,000 $ 82,000 77,000 23,000 62,000 14,000 $ 76,000 $ 100,000 $ 39,500 $ (18,000) 1. Find the expected change in annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (l.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $42,500? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. 2. Required % increase in sales from T-1 % 3. Required % increase in sales from T-1 %
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