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: Sales Variable expenses: Variable manufacturing expenses Sales commissions. Shipping Total variable expenses 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 Purchasing department. Thalassines Kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 Total fixed expenses Net operating loss *Common costs allocated on the basis of machine-hours. +Common costs allocated on the basis of sales dollars. $ 120,000 48,000 22,000 Financial (disadvantage) 27,000 104,000 50,000* 126,000 9,000 58,000* $ 420,000 190,000 230,000 374,000 $ (144,000) 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., 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: Sales Variable expenses: Variable manufacturing expenses Sales commissions. Shipping Total variable expenses 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 Purchasing department. Thalassines Kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 Total fixed expenses Net operating loss *Common costs allocated on the basis of machine-hours. +Common costs allocated on the basis of sales dollars. $ 120,000 48,000 22,000 Financial (disadvantage) 27,000 104,000 50,000* 126,000 9,000 58,000* $ 420,000 190,000 230,000 374,000 $ (144,000) 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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:
Sales
Variable expenses:
Variable manufacturing expenses
Sales commissions.
Shipping
Total variable expenses
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
Purchasing department.
Thalassines Kataskeves, S.A.
Income Statement-Bilge Pump
For the Quarter Ended March 31
Total fixed expenses
Net operating loss
*Common costs allocated on the basis of machine-hours.
+Common costs allocated on the basis of sales dollars.
$ 120,000
48,000
22,000
Financial (disadvantage)
27,000
104,000
50,000*
126,000
9,000
58,000*
$ 420,000
190,000
230,000
374,000
$ (144,000)
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?
Transcribed Image Text:Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format
income statement follows:
Sales
Variable expenses.
Contribution margin
Fixed expenses
Net operating income (loss)
Total
$ 4,210,000
1,308,000
2,902,000
2,370,000
$ 532,000
Financial (disadvantage)
Department
Hardware
$ 3,180,000
905,000
2,275,000
1,480,000
$ 795,000
Required:
What is the financial advantage (disadvantage) of discontinuing the Linens Department?
A study indicates that $379,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue
even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 18% decrease in the
sales of the Hardware Department.
Linens
$ 1,030,000
403,000
627,000
890,000
$ (263,000)
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