Bailey Company manufactures and sells a number of products, including Product R.
ID: 2426326 • Letter: B
Question
Bailey Company manufactures and sells a number of products, including Product R. Results from last year from the sale of Product R appear below:
Sales revenue ............................. $750,000
Variable production costs ................. 450,000
Sales commissions ......................... 110,000
Salary of product manager ................. ?
Advertising expense ....................... 80,000
Allocated general overhead ................ ?
Net operating loss ........................ <55,000>
Bailey Company is considering eliminating the production and sale of Product R. The company has determined that if Product R is discontinued, the contribution margin of its other products will increase by $40,000.
Based on a cost ananlysis, the management of Bailey Company has determined that if Product R is discontinued the company's net income will increase by $25,000.
Calculate the amount of allocated general overhead cost for Product R incurred last year. Do not use decimals in your answer.
Explanation / Answer
Sales Revenue 750000 Less: Variable Cost 450000 Contribution 300000 Sales Commission 110000 Salary of product manager 95000 Advertising expenses 80000 Allocation general overhead 70000 Operating and administratve expenses 355000 Net operating Loss -55000 If we deduct 355000 form contribution $300000 we get net loss -$55000 Salary of product manager+Allocation general overhead=$355000-110000-80000=$165000 Only allocation overhead will be taken into account -55000 so allocation overhead will be 40000-x=-55000+25000 Allocation general overhead x = - x=-55000+25000-40000 - x -70000 x 70000 Salary of product manger will be 165000-70000 $95,000
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