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. 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 incremental gain/loss of $ 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 manufacturing costs of $9.00, and variable selling expenses of $2.46. Poole estimates that 6,300 units of Product T could be sold annually; she feels that this would be good for the company, as total sales revenue will increase by $22,200 and Product T would be replacing a product that is currently losing money for the company. Poole also believes that this would be good for the morale of the sales department, as total sales commissions will increase. 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 incremental gain/loss of $
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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.
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 incremental gain/loss of $
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 incremental gain/loss of $
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