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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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
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