Dwight Corporation provides two kinds of products. During the most recent accoun
ID: 2499804 • Letter: D
Question
Dwight Corporation provides two kinds of products. During the most recent accounting period, the two product lines produced the following operating results: Product A Product B Sales Revenue $80,000 $20,000 Unit-Level Costs (50,000) (15,000) Product-Level Costs (10,000) (2,000) Company-wide Costs (5,000) (5,000) Net Income $15,000 ($ 2,000) Product-Level Costs are for separate advertising campaigns that are specific to each product. Company-wide costs are an allocation of the fixed insurance costs on the corporate office and is not affected if a product line is eliminated. Prepare an analysis that shows whether Product B should be eliminated and the dollar impact it would have on the Net Income of Dwight Corporation.
Explanation / Answer
Net income of product A =15,000
Net income of product B =(2000)
Hence total net income = (15,000-2000)
=$13,000
Now if product B is eliminated,
Sales. = $80,000
Unit level cost = $(50,000)
Product level cost =$(10,000)
Company wide cost =$(10,000)
Net income =$10,000
Hence,since the net income is decreasing due elimination of product B,it should not be eliminated.
The impact that elimination of product B will cause to Net income is a loss of $(13000-10,000)=$3000
Note - Unit level cost will only be incurred on unit produced.Hence if product B is eliminated no cost will be incurred.
Note -Company wide cost is a fixed cost which will be incurred irrespective of level of production .
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.