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ACC - Mr. Earl Pearl, accountant for Margie Knall, Inc.

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Question;Mr. Earl Pearl, accountant for Margie Knall, Inc. has prepared the following product-line income data:PRODUCTTotal A B CSales................................................$ 100,000........$50,000.........$20,000...........$30,000Variable expenses.............................. 60,000..........30,000............10,000.............20,000Contribution margin..............................40,000..........20,000............10,000.............10,000Fixed expenses:Rent..................................................5,000...........2,500..............1,000...............1,500Depreciation..................................... 6,000...........3,000..............1,200................1,800Utilities.............................................4,000...........2,000.................500................1,500Supervisors' salaries....................... 5,000.......... 1,500.................500................3,000Maintenance....................................3,000...........1,500..................600..................900Administrative expenses................ 10,000...........3,000.................2,000..............5,000Total fixed expenses........................ 33,000..........13,500...............5,800.............13,700Net operating income........................ $7,000..........$6,500.............$4,200............($3,700)The additional information below is available.The factory rent of $1,500 assigned to Product C is avoidable if the product is dropped.The company's total depreciation would not be affected by dropping C.Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.All supervisors' salaries are avoidable.If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000.Elimination of Product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,000.Required: Prepare an analysis showing whether Product C should be eliminated. Articulate your findings.

 

Paper#40571 | Written in 18-Jul-2015

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