Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below: WILLIAMS PRODUCTS INC. Income Statement—School Knapsacks For the Quarter Ended June 30 Sales $ 300,000 Variable expenses: Variable manufacturing expenses $ 84,000 Sales commissions 33,000 Shipping 9,000 Total variable expenses 126,000 Contribution margin 174,000 Fixed expenses: Salary of product-line manager 11,750 General factory overhead 59,950 * Depreciation of equipment (no resale value) 23,000 Advertising—traceable 54,650 Insurance on inventories 5,000 Purchasing department 34,600 † Total fixed expenses 188,950 Operating loss $ (14,950 ) *Allocated on the basis of machine-hours. †Allocated on the basis of sales dollars. Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company’s total general factory overhead or total purchasing department expenses. a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.) b. Would you recommend that the Williams Products Inc line be discontinued? Yes No
Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below:
WILLIAMS PRODUCTS INC. | ||||||
Income Statement—School Knapsacks | ||||||
For the Quarter Ended June 30 | ||||||
Sales | $ | 300,000 | ||||
Variable expenses: | ||||||
Variable manufacturing expenses | $ | 84,000 | ||||
Sales commissions | 33,000 | |||||
Shipping | 9,000 | |||||
Total variable expenses | 126,000 | |||||
Contribution margin | 174,000 | |||||
Fixed expenses: | ||||||
Salary of product-line manager | 11,750 | |||||
General factory |
59,950 | * | ||||
23,000 | ||||||
Advertising—traceable | 54,650 | |||||
Insurance on inventories | 5,000 | |||||
Purchasing department | 34,600 | † | ||||
Total fixed expenses | 188,950 | |||||
Operating loss | $ | (14,950 | ) | |||
*Allocated on the basis of machine-hours.
†Allocated on the basis of sales dollars.
Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company’s total general factory overhead or total purchasing department expenses.
a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.)
b. Would you recommend that the Williams Products Inc line be discontinued?
-
Yes
-
No
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