Question

Document1 Word es Mailings Review View Add-ins Help Tell me what you want to do A Aa A 2 T AaBbCcDd AaßbCcDd AaBbC AaBbCcl Aa B AaBbCcD 1 Normal 1 No Spac Heading 1 Heading 2 Title Subtitle Paragraph 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: ThalasaineR Kataskeves, s.A. Income Statement-Bilge Pump For the Quarter Ended March 31 Sales Variable expenses: Variable manufacturing expenses Sales commissions shipping Total variable expenses Contribution margin Fised expenses: dvertising (for the bilge pump product ine) Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories Purchasing department Total fixed expenses Net operating loss $850,000 $330, 000 42,000 18,000 390, 000 460, 000 270,000 80,000 105,000 32, 000 8,000 45, 000 540,000 $(80, 000) I Common costs allocated on the basis of machine-hours. Common 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

Solution:

Thalassines Kataskeves
Bilge pump product line
Particulars	Continue Pump product line	Discontinue Pump Product line	Financial advantage (disadvantage) of discontinuing
Sales	$8,50,000	$0	-$8,50,000
Total Variable manufacturing and selling expenses	$3,90,000	$0	-$3,90,000
Contribution Margin	$4,60,000	$0	-$4,60,000
Fixed Expenses:
Advertising	$2,70,000	$0	-$2,70,000
Salaries of Product line manager	$32,000	$0	-$32,000
Insurance on inventories	$8,000	$0	-$8,000
Net Income	$1,50,000	$0	-$1,50,000

Financial Disadvantage = - $150,000