Question

Problem 8-29 Cullumber Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement, is as follows: Sales Variable expenses Contribution margin Advertising expense Depreciation expense Corporate expenses Total fixed expenses Operating income $2,244,000 1,684,000 $560,000 $527,000 15,200 92,500 $634,700 $(74,700) $1,407,000 601,000 $806,000 $430,000 10,100 80,200 $520,300 $285,700 $1,813,400 1,099,500 $713,900 $522,000 20,300 105,200 $647,500 $66,400 Total $5,464,400 3,384,500 $2,079,900 $1,479,000 45,600 277,900 $1,802,500 $277,400 Advertising expense - Specific to each product. Depreciation expense - Specific to each product; no other use available, no resale value. Corporate expenses - Allocated based on number of employees.

Answer 1

Segment Margin format Income Statement
	A	B	C	Total
Sales	2,244,000	1,407,000	1,813,400	5,464,400
Variable Expenses	1,684,000	601,000	1,099,500	3,384,500
Contribution Margin	560,000	806,000	713,900	2,079,900
Less: Traceable fixed expenses
Advertising	527,000	430,000	522,000	1,479,000
Depreciation	15,200	10,100	20,300	45,600
Segment Margin	17,800	365,900	171,600	555,300
Less: Common Expenses				277,900
Net Income				277,400
Net Income will reduce by 17800+15200 = $33,000
Units required to be sold = 560000/(10-4) = 93,333.33 units
i.e. 93,333 units