Stretch Inc. sells both yoga pants and yoga mats. Manager for Stretch are concerned about their operating losses. They are considering dropping their yoga mat product line. Operating income by product line and in total is shown below. 1) Prepare a new operating income analysis assuming Stretch will only sell yoga pants. 2) Then explain why Stretch should drop or not drop the yoga mat product line based on your analysis. All fixed costs are allocated fixed costs. Income Statement for year ended December 31, 2020 Sales Revenue Total $425,000 Yoga Pants $299,000 Yoga Mats $126,000 Variable Costs $221,000 Yoga Pants $136,000 Yoga Mats $ 85,000 Contribution Margin $204,000 Yoga Pants 163,000 Yoga Mats $41,000 Fixed Costs: Fixed Manufacturing Total $127,000 Yoga Pants $62,000 Yoga Mats $65,000 Selling & Administrative Total $64,000 Yoga Pants $46,000 Yoga Mats $18,000 Operating Income Total$13,000 Yoga Pants $55,000 Yoga Mats (42,000)
Stretch Inc. sells both yoga pants and yoga mats. Manager for Stretch are concerned about their operating losses. They are considering dropping their yoga mat product line. Operating income by product line and in total is shown below. 1) Prepare a new operating income analysis assuming Stretch will only sell yoga pants. 2) Then explain why Stretch should drop or not drop the yoga mat product line based on your analysis. All fixed costs are allocated fixed costs. Income Statement for year ended December 31, 2020 Sales Revenue Total $425,000 Yoga Pants $299,000 Yoga Mats $126,000 Variable Costs $221,000 Yoga Pants $136,000 Yoga Mats $ 85,000 Contribution Margin $204,000 Yoga Pants 163,000 Yoga Mats $41,000 Fixed Costs: Fixed Manufacturing Total $127,000 Yoga Pants $62,000 Yoga Mats $65,000 Selling & Administrative Total $64,000 Yoga Pants $46,000 Yoga Mats $18,000 Operating Income Total$13,000 Yoga Pants $55,000 Yoga Mats (42,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Stretch Inc. sells both yoga pants and yoga mats. Manager for Stretch are concerned about their operating losses. They are considering dropping their yoga mat product line. Operating income by product line and in total is shown below. 1) Prepare a new operating income analysis assuming Stretch will only sell yoga pants. 2) Then explain why Stretch should drop or not drop the yoga mat product line based on your analysis. All fixed costs are allocated fixed costs.
Income Statement for year ended December 31, 2020
Sales Revenue Total $425,000 Yoga Pants $299,000 Yoga Mats $126,000
Variable Costs $221,000 Yoga Pants $136,000 Yoga Mats $ 85,000
Contribution Margin $204,000 Yoga Pants 163,000 Yoga Mats $41,000
Fixed Costs:
Fixed Manufacturing Total $127,000 Yoga Pants $62,000 Yoga Mats $65,000
Selling & Administrative Total $64,000 Yoga Pants $46,000 Yoga Mats $18,000
Operating Income Total$13,000 Yoga Pants $55,000 Yoga Mats (42,000)
Transcribed Image Text:Paste
BIU-
Format Painter
O Menge & Center
24
Clipboard
Font
Alignment
A2
Stretch Inc.
A
B.
C.
D
E
3.
Income Statement
For year ended December 31, 2020
Total
Yoga Pants
Yoga Mats
7 Sales Revenue
$425,000
$299,000
$ 126,000
85,000
8 Variable Costs
9 Contribution Margin
10 Fixed Costs:
11 Fixed Manufacturing
12 Selling & Administrative
221,000
136,000
204,000
163,000
41,000
127,000
62,000
65,000
64,000
46,000
18,000
13 Operating Income
13,000
55,000
(42,000)
14
15
16
Stretch Inc.
17
Income Statement
18
For year ended December 31, 2020
19
Total
20 Sales Revenue
21 Variable Costs
22 Contribution Margin
23 Fixed Costs:
24 Fixed Manufacturing
25 Selling & Administrative
26 Operating Income
27
28 Explanation:
Decison #1
Decison #2
Decison #3
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