Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal.
Mohave’s information related to the Sand Trap line is shown below.
Segmented Income Statement for Mohave’s | ||||||||||||||||||
Sand Trap Beach Umbrella Products | ||||||||||||||||||
Indigo | Verde | Azul | Total | |||||||||||||||
Sales revenue | $ | 60,000 | $ | 60,000 | $ | 30,000 | $ | 150,000 | ||||||||||
Variable costs | 34,000 | 31,000 | 26,000 | 91,000 | ||||||||||||||
Contribution margin | $ | 26,000 | $ | 29,000 | $ | 4,000 | $ | 59,000 | ||||||||||
Less: Direct fixed costs | 1,900 | 2,500 | 2,000 | 6,400 | ||||||||||||||
Segment margin | $ | 24,100 | $ | 26,500 | $ | 2,000 | $ | 52,600 | ||||||||||
Common fixed costs* | 17,840 | 17,840 | 8,920 | 44,600 | ||||||||||||||
Net operating income (loss) | $ | 6,260 | $ | 8,660 | $ | (6,920 | ) | $ | 8,000 | |||||||||
*Allocated based on total sales revenue
Mohave has determined that eliminating the Azul model would cause sales of the Indigo and Verde models to increase by 10 percent and 15 percent, respectively. Variable costs for these two models would increase proportionately. Although the direct fixed costs could be eliminated, the common fixed costs are unavoidable. The common fixed costs would be redistributed to the remaining two products.
Required:
1-a. Complete the table given below, assuming Mohave Corp. drops the Azul line.
1-b. Will Mohave’s net operating income increase or decrease if the Azul model is eliminated? By how much?
2. Should Mohave drop the Azul model?
3-a. Complete the table given below assuming that Mohave had no direct fixed overhead in its production information and the entire $51,000 of fixed cost was common fixed cost.
3-b. Should Mohave drop the Azul model?
3-c. What is the increase or decrease in the net operating income of Mohave?
Screen Shot 2021-04-06 at 8.17.08 PM.png
Screen Shot 2021-04-06 at 8.17.17 PM.png
Screen Shot 2021-04-06 at 8.17.01 PM.png
Screen Shot 2021-04-06 at 8.17.33 PM.png
Screen Shot 2021-04-06 at 8.17.22 PM.png
Screen Shot 2021-04-06 at 8.17.28 PM.png
Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impres
Chapter 7 Assignment i Saved 10 Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the Azul model have been dismal. 10 points Mohave's information related to the Sand Trap line is shown below. eBook Segmented Income Statement for Mohave's Sand...
show all work please! i cant figure out the ones in the blanks but how do you get values for the the common fixed costs and the net operating income (loss)? Mohave Corp. is considering eliminating a product from its Sand Trap line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Indigo and Verde umbrellas, have impressive sales. However, sales for the...
Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 3,100 of the US umbrellas at a price of $32 each. Mohave currently has the excess capacity necessary...
The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with no decoration. The company is considering changing this product to a much more decorative model by adding a silk-screened design and embellishments. A summary of the expected costs and revenues for Mohave’s two options follows: Rosa UmbrellaDecorated UmbrellaEstimated demand27,000units27,000unitsEstimated sales price$29.00$39.00Estimated manufacturing cost per unitDirect materials$19.50$21.50Direct labor4.507.00Variable manufacturing overhead3.505.50Fixed manufacturing overhead6.006.00Unit manufacturing cost$33.50$40.00Additional development cost$12,000Required:1. Determine the increase or decrease in profit if Mohave sells the Rosa...
Mohave Corp. is considering outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from a supplier in Vietnam to produce 8,300 units per year for $10.00 each. Mohave has the following information about the cost of producing tote bags:Direct materials$6.00Direct labor2.00Variable manufacturing overhead1.00Fixed manufacturing overhead1.50Total cost per unit$10.50Mohave has determined that all variable costs could be eliminated by outsourcing the tote bags, while 60 percent of the fixed overhead cost...