Palaro Enterprises has a variety of product lines, all related to sports. The managers are not happy with expected results of the apparel line (below) and are considering dropping it. If they did so, the company could recover the investment in receivables and inventory related to the line and pay off debt of P320,000 that bears 14% interest.SalesP200,000Variable cost125,000Contribution marginP 75,000Avoidable fixed costs40,000Product marginP35,000Investment in receivables and inventoriesP320,000REQUIRED: Determine whether Palaro should drop the apparel line.
Palaro Enterprises has a variety of product lines, all related to sports. The managers are not happy with expected results of the apparel line (below) and are considering dropping it. If they did so, the company could recover the investment in receivables and inventory related to the line and pay off debt of P320,000 that bears 14% interest.SalesP200,000Variable cost125,000Contribution marginP 75,000Avoidable fixed costs40,000Product marginP35,000Investment in receivables and inventoriesP320,000REQUIRED: Determine whether Palaro should drop the apparel line.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Palaro Enterprises has a variety of product lines, all related to sports. The managers are not happy with expected results of the apparel line (below) and are considering dropping it. If they did so, the company could recover the investment in receivables and inventory related to the line and pay off debt of P320,000 that bears 14% interest.
Sales
P200,000
Variable cost
125,000
Contribution margin
P 75,000
Avoidable fixed costs
40,000
Product margin
P35,000
Investment in receivables and inventories
P320,000
REQUIRED: Determine whether Palaro should drop the apparel line.
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