Question

Help me with accounting problem please

Suppose Better Harvest is considering discontinuing its mallow charms product line. Assume that during the past year, the mallow charms' product line income statement showed the following: (Click the icon to view the income statement data.) (Click the icon for additional information. If the company decides to discontinue the product line, what will happen to the company's operating income? Should Better Harvest discontinue the mallow charms product line? Begin by preparing a contribution margin income statement for the mallow charms' product line. (Use a minus sign or parentheses to enter a loss.) Sales revenue Less: Contribution margin Less: i More Info Operating income (loss) * Data Table Fixed manufacturing overhead costs account for 40% of the cost of goods, while only 30% of the operating expenses are fixed. Since the mallow charms line is just one of the company's cereal operations, only $760,000 of direct fixed costs (the majority of which is advertising) will be eliminated if the product line is discontinued. The remainder of the fixed costs will still be incurred by the company. Sales revenue 7,400,000 6,300,000 Less: Cost of goods sold Gross profit Print Done Less: Operating expenses 1,100,000 1,400,000 (300,000) Operating income (loss) Print Done

Answer 1

xed and variable costs fise, wo need to separate the Cost of goods sold $25,20,000 e d manvhacturing costs MAnukautuning 1 63,00,000 X 63,00,000 X 60 = 3,80,00o vaiable costs Cperacting expenses $420,000 oixed operating costs 9g0,000 o vauable opeyating cos15 14,00,000 X 30 / 14,00,000 x t0 % = Contibution margin nume statement $,00,co Revenue Sales $7,60,000 37,90,000 t $9,80,000 Less: variable expenses Contibudion mgin Less: Fixed exPonses 2640,000 29, yoi000 25,20, 000 t 1,20,000 fnuome (loss) 3,00,000) gerading

Ex pected decrease in vevenue Ex pected decrease in eypenses vaiable expenses [431,0,000t9,80,c0 Avoidable fixed experses Expected decrease in total expenses 4,00,000 M, 60, 000 ,60,000 55,20,000 adting Expected mcrease (decvease) in $1g 80,coo nlome Better harrest drops the mallow chaim it willoss , 8%0,000 o income thevefove Better Havest Should nod produt ine, this odud Jine