Question

ave & E Chee Thalassines Kataskeves, S.A, of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassinea Kataskeves, s.A. Income Statement-Bilge Pump For the Quarter Ended March 31 Sales $ 410,000 Variable expenses: Variable manufacturing expenses Sales conmissions Shipping Total variable expenses Contribution margin Fixed expenses: Advertising (for the bilge pump product 1ine) Depreciation of equipmont (no resale value) $126,000 54,000 18,000 198,000 212,000 General factory overhead Salary of product-1ine manager Insurance on inventories Purchasing department Total fixed expenses 25,000 106,000 30,000" 113,000 14,000 41,000 337,000 $(125,000) Net operating loss "Common costs allocated on the basis of machine-hours. tCommon costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses Denirnd 7 of 7 Next <Prev 91% EN W ere to search

Answer 1

Solution:

Calculation of financial advantage or disadvantage of discontinuing the blige pump product line

Particulars	Amount $	Amount $
Loss of contribution margin		(212,000)
Add: saving from avoidable fixed expenses
Advertising cost	25,000
salary of product line manager	113,000
insurance of inventories	14,000
Total saving of fixed cost		$152,000
Financial disadvantage		($60,000)