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: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 490,000 Variable expenses: Variable manufacturing expenses $ 129,000 Sales commissions 41,000 Shipping 16,000 Total variable expenses 186,000 Contribution margin 304,000 Fixed expenses: Advertising (for the bilge pump product line) 27,000 Depreciation of equipment (no resale value) 110,000 General factory overhead 40,000 * Salary of product-line manager 119,000 Insurance on inventories 11,000 Purchasing department 44,000 † Total fixed expenses 351,000 Net operating loss $ (47,000 ) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars. 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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:

Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31
Sales				$	490,000
Variable expenses:
Variable manufacturing expenses	$	129,000
Sales commissions		41,000
Shipping		16,000
Total variable expenses					186,000
Contribution margin					304,000
Fixed expenses:
Advertising (for the bilge pump product line)		27,000
Depreciation of equipment (no resale value)		110,000
General factory overhead		40,000	^*
Salary of product-line manager		119,000
Insurance on inventories		11,000
Purchasing department		44,000	^†
Total fixed expenses					351,000
Net operating loss				$	(47,000	)

*Common costs allocated on the basis of machine-hours.

†Common costs allocated on the basis of sales dollars.

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?

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