Problem Swanton Company currently sells 3 products and details of revenues and c
ID: 2442758 • Letter: P
Question
Problem
Swanton Company currently sells 3 products and details of revenues and costs are given below. The company is thinking of discontinuing the production of paper clip holders. However, because many customers buy the products as a set, Swanton estimates that the sales of the other two products will decrease by 20%.#
Desk
Calendars Pen sets Paper-clip
Holders
Sales $280,000 $240,000 $24,000
Variable costs 160,000 160,000 26,000
Direct fixed costs 40,000 20,000 5,000
Indirect fixed costs 30,000 40,000 6,000
What is the net benefit or net loss of dropping the production and sale of paper clip holders? Show your work.
Explanation / Answer
Desk Pen Paper-Clip
Calendars Sets Holders
Sales $280,000 $240,000 $24,000
Variable costs $160,000 $160,000 $26,000
CM $120,000 $80,000 $2,000
Direct FC $40,000 $20,000 $5,000
Indirect FC $30,000 $40,000 $6,000
Total Fixed costs $70,000 $60,000 $11,000
Net Income/(Loss) $50,000 $20,000 ($9,000)
Total Net Income ----- $61,000 -----
_______________________________________________
Post Discontinuance effect on net income
Desk Pen
Calendars Sets
Sales $224,000 $192,000
Variable costs $128,000 $128,000
CM $96,000 $64,000
Direct FC $40,000 $20,000
Indirect FC $30,000 $40,000
Indirect FC
Paper-Clips $3,231 $2,769
Total Fixed costs $73,231 $62,769
Net Income/(Loss) $23,000 $1,231
Total Net Income ---- $24,231 ------
Net loss after discontinuance $61,000 - $24,231 = $36,769
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