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 $ 440, eee $ 129,000 54, eee 11, cee 194,eee 246,000 Thalassines 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 Fixed expenses: Advertising (for the bilge pump product line) 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 23,000 106,000 48,000 122,000 6,000 55,000* 360,000 $(114,000) *Common costs allocated on the basis of machine-hours. Common costs allocated on the basis of sales dollars. < Prey 8 of 8 !! Next >

Answer 1

	Financial Disadvantage	=	$         -95,000
	Workings:
	Cost incurred even if Biige pump product line discontinued:
	Fixed Expenses:
	Depreciation of equipment	=	$       1,06,000
Add:	General factory overhead	=	$           48,000
Add:	Purchasing Department	=	$           55,000
	Loss on discontinuation of product line	=	$       2,09,000
	Loss on keeping the product line	=	$       1,14,000
Less:	Loss on dropping the product line	=	$       2,09,000
	Financial Disadvantage	=	$         -95,000