Question

Chapter 11 Assignment A Saved Help Save & Exit Submit Check my work Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. 0.31 points (8 02:42:33 Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next year, but the firm's cost structure will remain the same. Skipped T-1 $215,000 T-2 $272,000 eBook 73,000 13,000 $ 129,000 136,000 53,000 $ 83,000 References Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed expenses: Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income 63,000 15,000 $ 78,000 $ 51,000 78,000 24,000 $102,000 $(19,000)

Answer 1

Answer 1.

Contribution margin of T-1 = 129000

Incremental increase = 129000 * 10/100 = 12900

Change in annual operating income = 12900 - 83000 = (70100) loss

Answer 2.

Required increase in sales of T-1 = 83000 / 129000 = 64.34%

Answer 3.

Required increase in sales of T-1 = (83000 - 44000) / 129000 = 30.23%