Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has

Question

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.

Compute the increase or decrease of net operating income if the product line is continued or discontinued. (Decreases should be indicated by a minus sign.) Please use an income statement with columns for; Keep Product Line, Drop Product Line, and Difference of Net Operating Income.

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:

Explanation / Answer

Thalassines Kataskeves, S.A. Keep the product line Drop product line Difference : Net operating Income Increase/ Decrease Sales $440,000 0 $440,000 Variable expenses Variable anufacturing exp 120,000 0 120,000 Sales commissions 42,000 0 42,000 Shipping 18,000 0 18,000 Total variable expenses 180,000 0 180,000 Contribution margin 260,000 0 260,000 Fixed expenses: Advertising 23,000 0 23,000 Depreciation of equipment (no resale value) 113,000 113,000 0 General factory overhead 44,000 44,000 0 Salary of product-line manager 122,000 0 122,000 Insurance on inventories 5,000 0 5,000 Purchasing department 45,000 45,000 0 Total fixed expenses 352,000 150,000 Net operating loss ($92,000 ) $110,000

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