Williams Products Inc. manufactures and sells a number of items, including schoo

Question

Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below:

5 Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contnbution format income statement below WILLIAMS PRODUCTS INC Income Statement-School Knapsacks For the Quarter Ended June 30 Sales Variable expenses: 245.000 Variable manufacturing expenses Sales commissions Shipping $68,600 26,950 7,350 Total variable expenses 102,900 142,100 Contribution margin Fixed expenses Salary of product-line manager General factory overhead Depreciation of equipment (no resale value) Advertising traceable Insurance on inventories Purchasing departmemt 9,000 48.400 17,000 50,800 3,900 29,320r Total fixed expenses 158,420 Operating loss (16,320) Allocated on the basis of machine-hours. Allocated on the basis of sales dollars. Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company's total general factory overhead or total purchasing department expenses. Required: a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign.) rence: Operating School Drop School Income Knapsack Knapsack Keep Increase or Decrease Sales Variable expenses: Sales commissions Shipping Total variable expenses Contribution margin Fixed expenses Salary of product-line manager General factory overhead Depreciation of equipment Advertising-traceable Insurance on inventories Purchasing department Total fixed expenses Operating loss b. Would you recommend that the Williams Products Inc line be discontinued? Yes No

Explanation / Answer

Keep school knapsack Drop school knapsack Net Operating Income Sales 245000 0 -245000 Variable expenses: Variable manufacturing expenses 68600 0 68600 Sales commissions 26950 0 26950 Shipping 7350 0 7350 Total variable expenses 102900 0 102900 Contribution margin 142100 0 -142100 Fixed expenses: Salary of line manager 9000 0 9000 General factory overhead 48400 48400 0 Depreciation of equipment 17000 17000 0 Advertising— traceable 50800 0 50800 Insurance on inventories 3900 0 3900 Purchasing department 29320 29320 0 Total fixed expenses 158420 94720 63700 Operating loss -16320 -94720 -78400 b No

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