Tracey Douglas is the owner and managing director of Heritage Garden Furniture,

Question

Tracey Douglas is the owner and managing director of Heritage Garden Furniture, Ltd., a South African company that makes museum-quality reproductions of antique outdoor furniture. Ms. Douglas would like advice concerning the advisability of eliminating the model C3 lawnchair. These lawnchairs have been among the companys best-selling products, but they seem to be unprofitable.

  

  

The following additional data have been supplied by the company:

   

   

   

What would sales of the model C3 lawnchair have to be, at minimum, in order to justify retaining the product? (Omit the "R" sign in your response.)

   

     A condensed absorption costing income statement for the company and for the model C3 lawnchair for the quarter ended June 30 follows:

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Decrease in Net Operating Income = 316000 - 263800 = 52200 (You might have to enter -52200, since it is a decrease)

Part 2:

Contribution Ratio = (316000 - 252800)/316000*100 = 20%

Break Even Point = 11000/20% = 55000

Thanks.

Direct Materials 123600 Direct Labor 73600 Fringe Benefits 14720 Variable Manufacturing Overhead 5200 Product Manager' Salary 10000 Sales Commissions 15800 Fringe Benefits 2580 Shipping 18300 Total Avoidable Costs 263800

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