Auditing |
Tax |
Consulting |
|
Sales |
300,000 |
500,000 |
600,000 |
Variable costs |
250,000 |
300,000 |
350,000 |
Fixed Costs |
50,000 |
60,000 |
80,000 |
Net income |
- |
140,000 |
170,000 |
1. Compute net income if the firm decides to keep audit (make no adjustments).
Auditing | Tax | Consulting | |
Sales | $300,000 | $500,000 | $600,000 |
Variable costs | $250,000 | $300,000 | $350,000 |
Contribution margin | $50,000 | $200,000 | $250,000 |
Fixed costs | $50,000 | $60,000 | $80,000 |
Net income | $0 | $140,000 | $170,000 |
Total net income = $0 + $140,000 + $170,000
= $310,000
Keep or Drop a Product Line: Cainas Company CPAs is a regional accounting firm that offers...
Keep or Drop a Product Line: Cainas Company CPAs is a regional accounting firm that offers audit, tax, and consulting services. The partners are concerned about the profitability of their audit business, and a closure decision might be forthcoming. Facts known are as follows: If the firm drops it audit work, it might do more tax work. Only 30% of the fixed costs associated with auditing disappear by dropping the audit function. More tax work can increase revenues by 40%,...
Structuring a keep-or-Drop Product Line Problem with Complementary Effects Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $400,000 $300,000 $200,000 120,000 $900,000 595,000 Less: Variable expenses 225,000 250,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses: Machine rent (5,000) (20,000) (30,000) (55,000) Supervision (15,000) (10,000) (5,000) (30,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (10,000) $150,000 $ Hickory's management...
Structuring a Keep-or-Drop Product Line Problem with Complementary Effects Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses: Machine rent (5,000) (20,000) (30,000) (55,000) Supervision (15,000) (10,000) (5,000) (30,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (10,000) $150,000 Hickory's management is...
Keep-or-Drop for Service Firm, Complementary Effects, Traditional Analysis Devern Assurance Company provides both property and automobile insurance. The projected income statements for the two products are as follows: Property Insurance Automobile Insurance Sales $4,200,000 $12,000,000 Less variable expenses 3,830,000 9,600,000 Contribution margin $370,000 $2,400,000 Less direct fixed expenses 400,000 500,000 Segment margin $(30,000) $1,900,000 Less common fixed expenses (allocated) 100,000 200,000 Operating income (loss) $(130,000) $1,700,000 The president of the company is considering dropping the property insurance. However, some policyholders...
Structuring a Keep-or-Drop Product Line Problem with Complementary Effects Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses: Machine rent (5,000) (20,000) (30,000) (55,000) Supervision (15,000) (10,000) (5,000) (30,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (10,000) $150,000 Hickory's management is...
Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Total Plank Parquet Sales revenue $400,000 $200,000 $900,000 $300,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $80,000 $50,000 $305,000 Less direct fixed expenses: |(5,000) (50,000) (75,000) Machine rent (20,000) (20,000) (15,000) (10,000) (45,000) Supervision (35,000) (10,000) (70,000) Depreciation (25,000) $ 40,000 $120,000 $(45,000) $115,000 Segment margin Hickory's management is deciding whether to keep or drop...
Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses: Machine rent (5,000) (20,000) (50,000) (75,000) Supervision (15,000) (10,000) (20,000) (45,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (45,000) $115,000 Hickory's management is deciding whether to...
Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines: Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses: Machine rent (5,000) (20,000) (50,000) (75,000) Supervision (15,000) (10,000) (20,000) (45,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (45,000) $115,000 Orzo's management is deciding whether to...
OBJECT arief Exercise 8-19 Structuring a Keep-or-Drop Product-Line Problem Refer to the information for Hickory Company above. Hickory's management is deciding whether to keep or drop the parquet product line. Hickory's parquet flooring product line has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Relevant fixed costs associated with this line include 80% of parquet's machine rent and all of parquet's supervision salaries. (Continued) Example Required: 1. List the...
Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $360 $1,825 Less: Variable expenses $1,280 1,115 $165 $185 45 $140 270 1,430 Contribution margin $395 Less direct fixed expenses: Depreciation 15 80 15 100 95 Salaries 85 280 20 $40 $(25) Segment margin $35 Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to...