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: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 480,000 Variable expenses: Variable manufacturing expenses $ 126,000 Sales commissions 46,000 Shipping 15,000 Total variable expenses 187,000 Contribution margin 293,000 Fixed expenses: Advertising 29,000 Depreciation of equipment (no resale value) 119,000 General factory overhead 49,000 * Salary of product-line manager 123,000 Insurance on inventories 14,000 Purchasing department 45,000 † Total fixed expenses 379,000 Net operating loss $ (86,000 ) l T-Mobile Wi-Fi 7:20 PM ezto.mheducation.com 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: Income Statement-Bilge Pump For the Quarter Ended March 31 Common costs allocated on the basis of machine-hours. tCommon costs allocated on the basis of sales dollars 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 Required: a. 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.) b. Would you recommend that the bilge pump product line be discontinued?

Explanation / Answer

INCOME STATEMENT-BILGE PUMP Keep Drop Net Increase/ Product Line Product Line (Decrease) in Income Sales revenue 480000 0 -480000 Variable expense Vvariable manufacturing expense 126000 0 126000 Sales commission 46000 0 46000 Shipping cost 15000 0 15000 Total Variable cost 187000 0 187000 Contribution 293000 -293000 Fixed expense Advertising 29000 0 29000 Depreciation on Equipment 119000 119000 0 General factory Overheads 49000 49000 0 Salary of Product line Manager 123000 0 123000 Insurance on Inventories 14000 0 14000 Purchasing department 45000 45000 0 Total fixed cost 379,000 213000 Net operating losses -86,000 -213000 -127000 NO, Bilge Pump shall not be discontinued

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