Fulp Associates currently produces three products. Product C is showing a net op
ID: 2476357 • Letter: F
Question
Fulp Associates currently produces three products. Product C is showing a net operating loss as indicated by the following condensed income statement prepared for the year ended December 31, 2014.
Fulp Associates
Product C
Condensed Income Statement for the Year Ended December 31, 2014
You have been hired to help analyze the decision as to whether to eliminate Product C. Upon investigation, you discover that if Product C is eliminated, $55,000 of the fixed costs shown on the above condensed income statement can be eliminated. The remainder of the fixed costs allocated to Product C are common fixed costs that will be allocated to the remaining two products by Fulp Associates.
Determine if Fulp Associates should discontinue Product C?
Sales (100,000 units at $4) $400,000 Variable costs (100,000 units at $2.85) 285,000 Contribution margin 115,000 Fixed costs 125,000 Operating loss $10,000Explanation / Answer
All Amounts in $ If Fulp Associates discountinues Product C Contribution Margin Loss 1,15,000 Less : Fixed Costs eliminated 55000 Net Income reduction 60,000 Since there is a reduction in the Net Income by $ 60,000 on discontinuing Product C, hence the product should not be discontinued.
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