Your Retail Store\'s accountant prepared the following income statement for the

Question

Your Retail Store's accountant prepared the following income statement for the ladies' accessories product line Sales Less: Variable expenses $3,175,000 1,492,250 Contribution margin Less: Fixed expenses: Wages Insurance on inventory Advertising 1,682,750 $1,143,000 63,500 698,500 1,905,000 Net operating income (loss) $ (222,250) Management is concerned about the loss and is considering dropping the product line. If the product line is dropped, a job has to be created elsewhere for a long-term employee currently earning an annual salary of $95,250. Required Calculate the increase or decrease in the operating income in both alternatives Keep Accesories Product Line Drop Accesories Product Line Sales ixed expenses Net operating income (loss) Should the ladies' accessories product line be dropped? Yes 0

Explanation / Answer

the following is the required table:

Should the ladies accessories product line be dropped?.

YES.

This is because dropping the product line will result in a lower overall loss of $95,250 as against a loss of $222,250 if the product is continued.

NOte:

in case the product is dropped fixed expenses in form of insurance on inventory and advertising expenses are not incurred, so they are not considered in the column ' drop accessories product line'.

Keep Accessories product line Drop Accessories product line Sales $3,175,000 nil less: variable expenses 1,492,250 nil Contribution margin 1,682,750 nil less: FIxed expenses Wages $1,143,000 $95,250 Insurance on inventory $63,500 nil Advertising $698,500 1,905,000 nil $95,250 Net operating income (loss) ($222,250) ($95,250)

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.