Question

Gator Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $482,000, variable expenses of $365,000, and fixed expenses of $141,000. Therefore, the gloves and mittens line had a net loss of $24,000. If Gator eliminates the line, $44,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line

Continue		Eliminate		Net Income Increase (Decrease)
Sales		$		$		$
Variable costs
Contribution margin
Fixed costs
Net income / (Loss)		$		$		$

The analysis indicates that Gator should eliminate/not eliminate the gloves and mittens line.

Answer 1

Answer:

Following table shows the analysis
	Continue	Eliminate	Net Income
Sales	4,82,000	-	-4,82,000
Variable costs	-3,65,000	-	3,65,000
Contribution margin	1,17,000	-	-1,17,000
Fixed costs	-1,41,000	-44,000	97,000
Net Income	-24,000	-44,000	-20,000
Clearly if the gloves and mittens line is eliminated net losses with increase to 44,000 which shown an increase in losses by 20,000. Therefore, this line should not be eliminated.