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28 Sep 2019
Merchant Company manufactures and sells three modelsofelectronic printers. Ken Gail, president of the company,isconsidering dropping model JT484 from its product line becausethecompany has experienced losses for this product over the pastthreequarters. The following product-level operating data havebeencompiled for the most recent quarter: Category Total JT284 JT384 JT484 Sales 1,000,000 500,000 200,000 300,000 Variablecosts 600,000 300,000 100,000 200,000 Contributionmargin 400,000 200,000 100,000 100,000 Fixed Costs: Rent 50,000 25,000 10,000 15,000 Depreciation 60,000 30,000 12,000 18,000 Utlilites 40,000 20,000 5,000 15,000 Maintenance 30,000 15,000 6,000 9,000 Administrative 100,000 30,000 20,000 50,000 Totalfixedcosts 330,000 135,000 58,000 137,000 Operatingincome(loss) 70,000 65,000 42,000 (37,000) In addition, the following information is alsoavailable: Factory rent and depreciation will not be affected byadecision to drop model JT484. Quarterly utility bills willbereduced from 40,000 to 31,000 if JT484 is dropped. Supervisioncosts fro JT484 can be eliminated if dropped. Themaintenancedepartment will be able to reduce quarterly costs by7,000 if JT484is dropped. Elimation of JT484 will make itpossible to eliminatetwo administrative staff positions withcombined salaries of 30,000per quarter. a. Should Merchant Company eliminate JT484? b. Merchant's sales manager believes that it isimportant tocontinue to produce JT484 to maintain a full productline. Heexpects the elimination of JT484 will reduce salesof the remainingtwo products by 5% each. Will thisinformation change your answer to(a)? Explain.
Merchant Company manufactures and sells three modelsofelectronic printers. Ken Gail, president of the company,isconsidering dropping model JT484 from its product line becausethecompany has experienced losses for this product over the pastthreequarters. The following product-level operating data havebeencompiled for the most recent quarter:
Category Total JT284 JT384 JT484
Sales 1,000,000 500,000 200,000 300,000
Variablecosts 600,000 300,000 100,000 200,000
Contributionmargin 400,000 200,000 100,000 100,000
Fixed Costs:
Rent 50,000 25,000 10,000 15,000
Depreciation 60,000 30,000 12,000 18,000
Utlilites 40,000 20,000 5,000 15,000
Maintenance 30,000 15,000 6,000 9,000
Administrative 100,000 30,000 20,000 50,000
Totalfixedcosts 330,000 135,000 58,000 137,000
Operatingincome(loss) 70,000 65,000 42,000 (37,000)
In addition, the following information is alsoavailable:
Factory rent and depreciation will not be affected byadecision to drop model JT484. Quarterly utility bills willbereduced from 40,000 to 31,000 if JT484 is dropped. Supervisioncosts fro JT484 can be eliminated if dropped. Themaintenancedepartment will be able to reduce quarterly costs by7,000 if JT484is dropped. Elimation of JT484 will make itpossible to eliminatetwo administrative staff positions withcombined salaries of 30,000per quarter.
a. Should Merchant Company eliminate JT484?
b. Merchant's sales manager believes that it isimportant tocontinue to produce JT484 to maintain a full productline. Heexpects the elimination of JT484 will reduce salesof the remainingtwo products by 5% each. Will thisinformation change your answer to(a)? Explain.
Jean KeelingLv2
28 Sep 2019