Question

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 Thalassines Kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31 Sales 500,000 Variable expenses: Variable manufacturing expenses Sales commissions Shipping s 130,000 45,000 22,000 ZAU 197,000 Total variable expenses Contribution margin Fixed expenses: 303,000 26,000 115,000 45,000 125,000 5,000 53,000t Advertising (for the bilge pump product 1line) Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories Purchasing department 369,000 s (66,000) Total fixed expenses 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 Required What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

Answer 1

The financial advantage (disadvantage) of discontinuing the bilge pump product line

Loss of contribution margin (303000)

Saving in advertisement cost 26000

Saving in Salary of product line manager   125000

Saving on insurance cost 5000

Net financial (disadvantage ) (147000)

Answer financial (disadvantage) (147000)