HiTech manufactures two products: Regular and Super. The results of operations for 20x1 follow.
Regular Super Total Units 13,000 4,200 17,200 Sales $338,000 $840,000 $1,178,000 Less: Cost of goods sold 273,000 504,000 777,000 Gross margin $65,000 $336,000 $401,000 Less: Selling expenses 65,000 190,000 255,000 Operating income $0 $146,000 $146,000
Fixed manufacturing costs included in cost of goods sold amount to $2 per unit for Regular and $30 per unit for Super. Variable selling expenses are $3 per unit for Regular and $30 per unit for Super remaining selling amounts are fixed. HiTech wants to drop the regular product line. If the line is dropped, company-wide fixed manufacturing costs would fall by 10% because there is no alternative use of the facilities. What would be the impact on operating income if Regular is discontinued?
$36,800 decrease.
$0
$15,200 increase
$26,000 increase
Homework Answers
| Revenue | -338000 | |
| variable cost of goods sold | 273000-(2*13000) | 247000 |
| variable selling expense | 13000*3 | 39000 |
| total fixed cost | (13000*2 + 4200*30)*10% | 15200 |
| profit/ loss | -36800 | |
| Answer is A | 36800 decrease |
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What would be the impact on operating income if Regular is discontinued?
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Direct materials
$
5...
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Year 1
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$
1,178,000
$
1,798,000
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665,000
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Gross margin
513,000
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Selling and administrative expenses*
305,000
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$
\208,000\
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448,000
* $3 per unit variable; $248,000 fixed each year.
The company’s $35 unit product cost is computed as follows:
Direct materials
$
5...
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