Scarce resource; discontinued product lines; negative contribution margin The officers of Bardwell Company are reviewing the profitability of the company’s four products and the potential effects of several proposals for varying the product mix. The following is an excerpt from the income statement and other data. Total Product P Product Q Product R Product S Sales $187,800 $30,000 $54,000 $37,800 $66,000 Cost of goods sold (132,822) (14,250) (21,168) (41,904) (55,500) Gross profit $54,978 $15,750 $32,832 $(4,104) $10,500 Operating expenses (36,012) (5,970) (8,904) (8,478) (12,660) Income before taxes 18,966 $9,780 $23,928 $(12,582) $(2,160) Units sold 3,000 3,600 5,400 6,000 Sales price per unit $10.00 $15.00 $7.00 $11.00 Variable cost of goods sold 2.50 3.00 6.50 6.00 Variable operating expenses 1.17 1.25 1.00 1.20 Each of the following proposals is to be considered independently of the other proposals. Consider only the product changes stated in each proposal; the activity of the other proposals remains stable. a. What is the effect on income if Product P is discontinued? Note: Do not use a negative sign with your answer. Dropping the segment would result in an Answer $Answer b. What is the effect on income if Product R is discontinued? Note: Do not use a negative sign with your answer. Dropping the segment would result in an Answer $Answer c. What is the effect on income if Product R is discontinued and a consequent loss of customers causes a decrease in sales of 600 units of Product Q? Note: Do not use a negative sign with your answer. Dropping the segment would result in an Answer $Answer
Scarce resource; discontinued product lines; negative contribution margin
The officers of Bardwell Company are reviewing the profitability of the company’s four products and the potential effects of several proposals for varying the product mix. The following is an excerpt from the income statement and other data.
| Total | Product P | Product Q | Product R | Product S | |
|---|---|---|---|---|---|
| Sales | $187,800 | $30,000 | $54,000 | $37,800 | $66,000 |
| Cost of goods sold | (132,822) | (14,250) | (21,168) | (41,904) | (55,500) |
| Gross profit | $54,978 | $15,750 | $32,832 | $(4,104) | $10,500 |
| Operating expenses | (36,012) | (5,970) | (8,904) | (8,478) | (12,660) |
| Income before taxes | 18,966 | $9,780 | $23,928 | $(12,582) | $(2,160) |
| Units sold | 3,000 | 3,600 | 5,400 | 6,000 | |
| Sales price per unit | $10.00 | $15.00 | $7.00 | $11.00 | |
| Variable cost of goods sold | 2.50 | 3.00 | 6.50 | 6.00 | |
| Variable operating expenses | 1.17 | 1.25 | 1.00 | 1.20 |
Each of the following proposals is to be considered independently of the other proposals. Consider only the product changes stated in each proposal; the activity of the other proposals remains stable.
a. What is the effect on income if Product P is discontinued?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an Answer $Answer
b. What is the effect on income if Product R is discontinued?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an Answer $Answer
c. What is the effect on income if Product R is discontinued and a consequent loss of customers causes a decrease in sales of 600 units of Product Q?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an Answer $Answer
d. What is the effect on income if the sales price of product R is increased to $8.00 with a decrease in the number of units sold to 4,500?
Note: Do not use a negative sign with your answer.
Dropping the segment would result in an Answer $Answer
e. Janet Poole, marketing manager at Bardwell Company, approaches Pamela Bardwell, the company’s president. She proposes that Bardwell Company drop production of Product S to produce Product T, which is made on the same production equipment. Product T has a selling price of $14.00, variable
What is the effect on income if the company drops Product S and produces Product T instead?
Note: Do not use a negative sign with your answer.
Note: Round your final answer to the nearest whole dollar.
Dropping the segment would result in an Answer $Answer
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