Thalassines Kataskeves, SA, of Greece makes marine equipment. The company has be

Question

Thalassines Kataskeves, SA, of Greece makes marine equipment. The company has been experiencing osses on es bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line folows Thalassines Kataskeves, SA Income Statement-Bilge Pump For the Quarter Ended March 31 $440,000 Variable manufacturing expenses Sales commissions $128,000 47,000 13,000 Shippling Total variable expenses 188,000 252,000 Contribution margin Fixed expenses: Depreciaion of equipment (no resale value) General faciory overhead Salary of product-line manager 24,000 105,000 36.000 129,000 6,000 41,0001 Total fxed expenses Net operating loss 341.000 $ (89,000) Common costs alocated on the basis of machine hours tCommon costs allocated on the basis of sales dolars Discontinuing the bilge pump product line would not affect sales of other product lines and would have ?? efect on tecompany's total general factory overhead or tal Archasing Department expenses. Required a. Compute the increase or decrease of net operating income t the product line is continued or discontinued. (Decreases should be indicated by a minus sign) Income Statement-Bilge Pump For the Quarter Ended March 31 Difference: Keep Product Line Product Line Drop Net Operating Income Increase or (Decrease) Variable expenses Total variable expenses

Explanation / Answer

Income Statement Keep Drop Difference in Product line Product line Net operating Income Sales revenue 440000 0 -440000 Variable cost: Variable Manufacturing cost 128000 0 128000 Sales commission 47000 0 47000 Shipping 13000 0 13000 Total variable cost 188000 0 188000 Contribution margin 252000 0 -252000 Fixed expense: Advertising 24000 0 24000 Depreciation on equipment 105000 105000 0 General Factory OH 36000 36000 0 Salary of Product line manager 129000 0 129000 Insurance on inventories 6000 0 6000 Purchasing department 41000 41000 0 Total fixed expense 341000 182000 159000 Net Income -89000 -182000 -93000 No, Bilge Pump Product line shall not be dropped.

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