Item5
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Item 5
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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 follows:
Thalassines Kataskeves, S.A.
Income Statement—Bilge Pump
For the Quarter Ended March 31
Sales
$ 460,000
Variable expenses:
Variable manufacturing expenses
$ 132,000
Sales commissions
55,000
Shipping
20,000
Total variable expenses
207,000
Contribution margin
253,000
Fixed expenses:
Advertising (for the bilge pump product line)
26,000
Depreciation of equipment (no resale value)
110,000
General factory overhead
41,000*
Salary of product-line manager
114,000
Insurance on inventories
9,000
Purchasing department
50,000†
Total fixed expenses
350,000
Net operating loss
$ (97,000)
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump 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?
2points
Time Remaining 2 hours 1 minute 57 seconds 02:01:57 Return to question Item 5 Time Remaining 2 hours 1 minute 57 seconds 02:01:57Thalassines 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 follows:
Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 460,000 Variable expenses: Variable manufacturing expenses $ 132,000 Sales commissions 55,000 Shipping 20,000 Total variable expenses 207,000 Contribution margin 253,000 Fixed expenses: Advertising (for the bilge pump product line) 26,000 Depreciation of equipment (no resale value) 110,000 General factory overhead 41,000* Salary of product-line manager 114,000 Insurance on inventories 9,000 Purchasing department 50,000† Total fixed expenses 350,000 Net operating loss $ (97,000)*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump 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?
Related questions
| The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31: |
| Amount | ||
| Total sales revenue | $ | 1,271,000 |
| Selling price per pair of skis | $ | 410 |
| Variable selling expense per pair of skis | $ | 50 |
| Variable administrative expense per pair of skis | $ | 16 |
| Total fixed selling expense | $ | 130,000 |
| Total fixed administrative expense | $ | 130,000 |
| Beginning merchandise inventory | $ | 75,000 |
| Ending merchandise inventory | $ | 105,000 |
| Merchandise purchases | $ | 290,000 |
| Required: | |
| 1. | Prepare a traditional income statement for the quarter ended March 31. |
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| 2. | Prepare a contribution format income statement for the quarter ended March 31. | |||||||||||||||||||||||||||||||||||||||||||||||||||
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| 3. | What was the contribution toward fixed expenses and profits for each pair of skis sold during the quarter? (Round your final answer to nearest whole dollar amount.) |
| The Regal Cycle Company manufactures three types of bicyclesâa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: |
| Total | Dirt Bikes | Mountain Bikes | Racing Bikes | |||||
| Sales | $ | 926,000 | $ | 270,000 | $ | 402,000 | $ | 254,000 |
| Variable manufacturing and selling expenses | 463,000 | 119,000 | 193,000 | 151,000 | ||||
| Contribution margin | 463,000 | 151,000 | 209,000 | 103,000 | ||||
| Fixed expenses: | ||||||||
| Advertising, traceable | 69,900 | 8,700 | 40,400 | 20,800 | ||||
| Depreciation of special equipment | 44,100 | 20,500 | 7,800 | 15,800 | ||||
| Salaries of product-line managers | 115,500 | 40,100 | 38,800 | 36,600 | ||||
| Allocated common fixed expenses* | 185,200 | 54,000 | 80,400 | 50,800 | ||||
| Total fixed expenses | 414,700 | 123,300 | 167,400 | 124,000 | ||||
| Net operating income (loss) | $ | 48,300 | $ | 27,700 | $ | 41,600 | $ | (21,000) |
| *Allocated on the basis of sales dollars. |
| Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.
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Bovine Company, a wholesale distributor of umbrellas, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:
| Sales | $ | 2,070,000 | |
| Variable expenses | 895,880 | ||
| Contribution margin | 1,174,120 | ||
| Fixed expenses | 1,319,000 | ||
| Operating loss | $ | (144,880 | ) |
In an effort to isolate the problem, the president has asked for an income statement segmented by geographic market. Accordingly, the Accounting Department has developed the following:
| Geographic Market | |||||||||
| South | Central | North | |||||||
| Sales | $ | 607,000 | $ | 806,000 | $ | 657,000 | |||
| Variable expenses as a percentage of sales | 50 | % | 36 | % | 46 | % | |||
| Traceable fixed expenses | $ | 320,000 | $ | 480,000 | $ | 307,000 | |||
Required:
1. Prepare a contribution format income statement segmented by geographic market, as requested by the president.
2-a. The company’s sales manager believes that sales in the Central geographic market could be increased by 10% if monthly advertising is increased by $32,000. Calculate the incremental net operating income.