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i Chrome File Edit ie History Bookmarks People Window Help Garrison CH 12 Quiz l@ ezto.mheducation.com/hm.tpx D, Sun 2:09 PM a E 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 bil ge pump product line follows: Thalassines Kataskeves, S.A Income Statement-Bilge Pump For the Quarter Ended March 31 Sales Variable expenses: 450,000 Variable manufacturing expenses Sales commissions $128,000 45,000 25,000 Shipping Total variable expenses 198,000 252,000 Contribution margin Fixed expenses: Depreciation of equipment (no resale value) General factory overhead Salary of product-line manager Insurance on inventories 26,000 110,000 31,000 117,000 15,000 57,000t Total fixed expenses 356,000 Net operating loss $(104,000) 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 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.) a. 5

Explanation / Answer

1 Keep Product Line Drop Product Line Difference Sales 450000 0 -450000 Variable expenses: Variable manufacturing expenses 128000 0 128000 Sales commissions 45000 0 45000 Shipping 25000 0 25000 Total variable expenses 198000 0 198000 Contribution margin 252000 0 -252000 Fixed expenses: Advertising 26000 0 26000 Depreciation of equipment 110000 110000 0 General factory overhead 31000 31000 0 Salary of product line manager 117000 0 117000 Insurance on inventories 15000 0 15000 Purchasing department 57000 57000 0 Total fixed expenses 356000 198000 158000 Net operating Income (loss) -104000 -198000 -94000 2 No

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