Question

Alternate problem C Following are sales and other operating data for the three products made and sold by Marine Enterprises: Product B C Total Sales $150,000 $90,000 $240,000 $480,000 Manufacturing costs: Fixed $ 15,000 $25,000 $30,000 $ 70,000 Variable 120,000 35,000 134,000 289,000 Selling and administrative expenses: Fixed 5,000 30,000 10,000 45,000 Variable 2,500 5,000 6,000 13,500 Total costs $142,500 $ 7,500 $95,000 $(5,000) $180,000 $ 60,000 $417,500 $ 62,500 Net income (loss) In view of the net loss shown for Product B, company management is considering dropping that product. All variable costs are direct costs and would be eliminated if Product B were dropped: all fixed costs are indirect costs and would not be eliminated. Assume that the space used to produce Product B would be left idle.

Answer 1

Solution as per Below Image:

Statement Showing Contribution For Each Product Amount in $ Products Total Particulars C A В A)Sales 480000 150000 90000 240000 Variable Costs: Manufacturing Cost Selling and administrative Expenses 120000 35000 134000 289000 13500 2500 6000 5000 302500 B) Total Variable Cost 122500 40000 140000 C) Contribution (A-B) 177500 27500 50000 100000 D) Contribution Percentage (C/AX 100) 41.67% 18.33 % 55.56% Fixed Cost Manufacturing Cost Selling and administrative Expenses ETotal Fixed Cost 70000 15000 25000 30000 45000 10000 5000 30000 115000 40000 20000 55000 Net Income ( C-E) 62500 Ranking As Per Contribution Percentage 2 3 1 Calculation of Net Income If Product B dropped Amount in S Products Total Particulars C A B A)Sales 390000 150000 240000 Variable Costs: Manufacturing Cost Selling and administrative Expenses B) Total Variable Cost 134000 254000 120000 6000 8500 2500 122500 140000 262500 C) Contribution (A- B) 27500 100000 127500 Fixed Cost Manufacturing Cost Selling and administrative Expenses E)Total Fixed Cost 15000 70000 25000 30000 30000 10000 5000 45000 20000 55000 40000 115000 F)Net Income (C- E) G) Existing Profit Additional Loss (F-G) (55000.00) 7500 60000 12500 62500 (50000.00) Comment on Management's proposal for Dropping Product B: Product B is the highest Contributing Product as per Contribution Percentage Ranking. If Product B were dropped fixed cost related to that product Would not be eliminated and also Space Used to produce Product B would be left Idle and thereby Company will incur Additional Loss of $ 50000 So Management's consideration of Dropping Product B is not Beneficial Scanned wi CS CamScanne |