the company is currently considering of it should drop hammers to improve the co
ID: 2592056 • Letter: T
Question
the company is currently considering of it should drop hammers to improve the company's profitability. work room estimates that dropping hammers will increase demand of pliers by 10%. for full credit, do not provide more work than is required in items a and b below: a) within the income statements provide in this problem, neatly circle/mark each dollar amount that is considered relevant as a result of dropping hamers. b) CLEARLY print the letter "X" to the immediate left of any amount that will appear as substraction on the incremental analysis for work room's decision
We De Differenhat Analysis | Work room has 3 product log in its tool stoles . ham m ers, wrenches, | and plias. The allocated fixed cols are unavoidable. Results of July follow = Hanma nchg PLOT Total Unids sodd 800 |200 2400 400 Revenue $23800 130400 9 36600 $90 800 Variabk 13600 13200 168 DO Direct fixed cos S 7000 6$ 185 00 J Allocated fixed co1 8000 9000 8 000 25 000 ! Operating in Come Closs) $ (28 00) $1200 IS 300 $3700 43600Explanation / Answer
Income statement if work room drops Hammers Wrenches Pilers Total Units sold 1200 2640 3840 (2400*110%) Revenue 30400 40260 70660 (2640*(36600/2400)) Variable costs 13200 18480 31680 (2640*(16800/2400)) Contribution margin 17200 21780 38980 Direct fixed costs 7000 6500 13500 Segment income 10200 15280 25480 Common fixed costs 25000 Operating income /(loss) 480 Since the total income before dropping of Hammers is more than the total income after dropping of hammers (ie. $3700 is more than $480) it is suggested to not to drop Hammers
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