Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has
ID: 2527863 • Letter: T
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.)
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
A)
Following assumptions are taken for solving this problem
the increase or decrease of net operating income if the product line is continued or discontinued is calculated below
Thalassines Kataskeves, S.A.
Income Statement—Bilge Pump
For the Quarter Ended March 31
Keep Product Line
Drop Product Line
Difference: Net Operating Income Increase or (Decrease)
Sales
$ 440,000
$0
-$440,000
Variable expenses:
Variable manufacturing expenses
$ 133,000
$0
$133,000
Sales commissions
$ 41,000
$0
$41,000
Shipping
$ 23,000
$0
$23,000
Total variable expenses
$ 197,000
$0
$197,000
Contribution margin
$ 243,000
0
-$243,000
Fixed expenses:
Advertising
$29,000
$0
$29,000
Depreciation of equipment (no resale value)
$116,000
$116,000
$0
General factory overhead
$49,000
$49,000
$0
Salary of product-line manager
$113,000
$0
$113,000
Insurance on inventories
$9,000
$0
$9,000
Purchasing department
$47,000
$47,000
$0
Total fixed expenses
$363,000
$212,000
$151,000
Net operating loss
-120000
-212000
-92000
B ) Would you recommend that the bilge pump product line be discontinued?
Ans
The net operating loss decreases to $92,000 if the bilge pump product line is discontinued . if it is continued then the net operating loss is at $120,000
There will be saving of $28,000 if the bilge pump product line be discontinued and hence is recommended
Thalassines Kataskeves, S.A.
Income Statement—Bilge Pump
For the Quarter Ended March 31
Keep Product Line
Drop Product Line
Difference: Net Operating Income Increase or (Decrease)
Sales
$ 440,000
$0
-$440,000
Variable expenses:
Variable manufacturing expenses
$ 133,000
$0
$133,000
Sales commissions
$ 41,000
$0
$41,000
Shipping
$ 23,000
$0
$23,000
Total variable expenses
$ 197,000
$0
$197,000
Contribution margin
$ 243,000
0
-$243,000
Fixed expenses:
Advertising
$29,000
$0
$29,000
Depreciation of equipment (no resale value)
$116,000
$116,000
$0
General factory overhead
$49,000
$49,000
$0
Salary of product-line manager
$113,000
$0
$113,000
Insurance on inventories
$9,000
$0
$9,000
Purchasing department
$47,000
$47,000
$0
Total fixed expenses
$363,000
$212,000
$151,000
Net operating loss
-120000
-212000
-92000
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