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Category > Accounting Posted 11 Aug 2017 My Price 11.00

Dexter Products, Inc.

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:

 

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?
   
 
  Yes
  No

 

Answers

Maurice Tutor
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Status NEW Posted 11 Aug 2017 12:08 PM My Price 11.00

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