1 answer

Dropping a Segment Thalassines kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing...

Question:

Dropping a Segment Thalassines kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses o
Dropping a Segment 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: 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. $850,000 $330,000 42,000 18,000 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.. Rxed expenses: Advertising Depreciation of equipment (no resale value General factory overhead.. Salary of product-line manager Insurance on Inventories... Purchasing department.. Total food expenses. Net operating loss. 390,000 460,000 270,000 80,000 105.000 32.000 8,000 45,000 540,000 $ (80,000 *Common costs allocated on the basis of machine-hours. Common costs allocated on the basis of sales dollars. Required: Would you recommend that the bilge pump product line be discontinued? Support your answer with appropriate computations.

Answers

Answer- The financial (disadvantage) of discontinuing the bilge pump product line = $(150000).Hence bilge pump product should not be discontinued.

Explanation-

Thalassines Kataskeves, S.A.
Computation of increase or decrease of net operating income if the product line is continued or discontinued
Particulars Keep Product Line Drop Product Line Difference Net Operating Income Increase or Decrease
$ $ $
Sales 850000 0 -850000
Less- Variable Expesnes
Variable manufacturing expenses 330000 0 330000
Sales commissions 42000 0 42000
Shipping 18000 0 18000
Total variable expenses 390000 0 390000
Contribution margin 460000 0 -460000
Less- Fixed Expesnes
Advertising 270000 0 270000
Depreciation of equipment 80000 80000 0
General factory overhead 105000 105000 0
Salary of product line manager 32000 0 32000
Insurance on inventories 8000 0 8000
Purchasing department 45000 45000 0
Total fixed expenses 540000 230000 310000
Net operating Income (loss) -80000 -230000 -150000
.

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