value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed, Crane designed models in different body styles, and those models have outpaced sedans, as follows. Sales Variable costs Contribution margin Sedan $1,207,000 697,000 510,000 SUV $4,210,000 1,996,000 2,214,000 807.000 Truck $3,892,000 1,817,000 2,075,000 1.198.000 Van $1,998,000 1,108,000 890,000 797,000
value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed, Crane designed models in different body styles, and those models have outpaced sedans, as follows. Sales Variable costs Contribution margin Sedan $1,207,000 697,000 510,000 SUV $4,210,000 1,996,000 2,214,000 807.000 Truck $3,892,000 1,817,000 2,075,000 1.198.000 Van $1,998,000 1,108,000 890,000 797,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
a-2
Transcribed Image Text:A value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body style. Sedans
were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed,
Crane designed models in different body styles, and those models have outpaced sedans, as follows.
Sales
Variable costs
Contribution margin
Fixed costs
Operating income (loss)
(a)
Sedan
$1,207,000
Crane would be
697,000
510,000
816,000
$(306,000)
SUV
$4,210,000
by $
1,996,000
2,214,000
907,000
$1,307,000
Truck
$3,892,000
1,817,000
2,075,000
1,198,000
$877,000
Van
$1,998,000
1,108,000
890,000
The income statements above reflect the second consecutive year the sedan category has lost money. Crane is concerned about
dropping this vehicle, however, since the company's success was originally built on it.
797,000
$93,000
Crane believes it can save $612,000 in fixed costs associated with the sedans if it drops that vehicle category. Should the company
seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan?
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