Exercise 12 10 Dropping or Retaining a Segment [LO2]
| Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement: Don't use plagiarized sources. Get Your Custom Essay on exercise 12 10 dropping or retaining a segment 421257 Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT! Just from $10/Page |
| Dexter Products, Inc. Income Statement”Overnight Cases For the Quarter Ended June 30 | ||||||
| Sales | $ | 500,000 | ||||
| Variable expenses: | ||||||
| Variable manufacturing expenses | $ | 135,000 | ||||
| Sales commissions | 53,000 | |||||
| Shipping | 10,000 | |||||
| | | | ||||
| Total variable expenses | 198,000 | |||||
| | | | ||||
| Contribution margin | 302,000 | |||||
| Fixed expenses: | ||||||
| Salary of product line manager | 20,000 | |||||
| General factory overhead | 103,000 | * | ||||
| Depreciation of equipment (no resale value) | 43,000 | |||||
| Advertising”traceable | 127,000 | |||||
| Insurance on inventories | 13,000 | |||||
| Purchasing department | 45,000 | Ac€ | ||||
| | | | ||||
| Total fixed expenses | 351,000 | |||||
| | | | ||||
| Net operating loss | $ | (49000 | ) | |||
| | | | ||||
| | ||||||
| *Allocated on the basis of machine hours. |
| Ac€ Allocated on the basis of sales dollars. |
| Discontinuing the overnight cases would not affect the company’s sales of its other product lines, its total general factory overhead, or its total purchasing department expenses. |
| Required | |
| a. | Compute the increase or decrease of net operating income if the overnight case are continued or discontinued. (Leave no cells blank be certain to enter “0” wherever required. Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign. Omit the “$” sign in your response.) |
| Keep Overnight Cases | Drop Overnight Cases | Net Operating Income | |
| Sales | $ | $ | $ |
| | | | |
| Variable expenses: | |||
| Variable manufacturing expenses | |||
| Sales commissions | |||
| Shipping | |||
| | | | |
| Total variable expenses | |||
| | | | |
| Contribution margin | |||
| | | | |
| Fixed expenses: | |||
| Salary of line manager | |||
| General factory overhead | |||
| Depreciation of equipment | |||
| Advertising”traceable | |||
| Insurance on inventories | |||
| Purchasing department | |||
| | | | |
| Total fixed expenses | |||
| | | | |
| Net operating Income (loss) | $ | $ | $ |
| | | | |
| | |||
| b. | Would you recommend that the company discontinue the manufacture and sale of overnight cases? | ||||
|
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