Dropping or Retaining a SegmentThalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.Required:What is the financial advantage (disadvantage) of discontinuing the bilge pump product line? Thalassines Kataskeves, S.A.Income Statement-Bilge PumpFor the Quarter Ended March 31Sales ...Variable expenses:Variable manufacturing expensesSales commissions...Shipping ...$850,000$330,00042,00018,000Total variable expenses.390,000Contribution marginFixed expenses:Advertising (for the bilge pump product line)Depreciation of equipment (no resale value)General factory overhead....Salary of product-line managerInsurance on inventories...460,000270,000....80,000105,000*32,0008,000Purchasing department .45,000Total fixed expenses540,000Net operating loss$ (80,000)"Common costs allocated on the basis of machine-hours."Common costs allocated on the basis of sales dollars.

Answered: Thalassines Kataskeves, S.A. Income…

FINANCIAL ACCOUNTING

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ISBN:9781259964947

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Chapter1: Financial Statements And Business Decisions

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Dropping or Retaining a Segment

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:

Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.

Required:

What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

Thalassines Kataskeves, S.A.
Income Statement-Bilge Pump
For the Quarter Ended March 31
Sales ...
Variable expenses:
Variable manufacturing expenses
Sales commissions...
Shipping ...
$850,000
$330,000
42,000
18,000
Total variable expenses.
390,000
Contribution margin
Fixed expenses:
Advertising (for the bilge pump product line)
Depreciation of equipment (no resale value)
General factory overhead....
Salary of product-line manager
Insurance on inventories...
460,000
270,000
....
80,000
105,000*
32,000
8,000
Purchasing department .
45,000
Total fixed expenses
540,000
Net operating loss
$ (80,000)
"Common costs allocated on the basis of machine-hours.
"Common costs allocated on the basis of sales dollars.

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