Atlantic Soup Company is presently operating at 75 percent of capacity. Worried
ID: 2569206 • Letter: A
Question
Atlantic Soup Company is presently operating at 75 percent of capacity. Worried about the company's performance, the president is considering dropping its clam chowder line. If clam chowder is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent.
Segmented income statements appear as follows:
Prepare a differential cost schedule. (Costs and their differences should be indicated with a minus sign. Omit the "$" sign in your response.)
Atlantic Soup Company is presently operating at 75 percent of capacity. Worried about the company's performance, the president is considering dropping its clam chowder line. If clam chowder is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company's total fixed costs would be reduced by 15 percent.
Explanation / Answer
a.
b. Atlantic should not drop the clam chowder product line because if drops than profit will be decrease by $1,530.
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Status Quo Alternative:Drop
Clam Chowder Difference $ Revenue 126,600 83,800 42,800 Decrease Less Variable Costs 100,700 62,100 38,600 Decrease Contribution Margin 25,900 21,700 4,200 Decrease Less Fixed Costs 17,800 15,130 2670 Decrease Operating profit (loss) 8,100 6,570 1,530 Decrease
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