Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:   Thalassines Kataskeves, S.A.Income Statement—Bilge PumpFor the Quarter Ended March 31 Sales   $ 440,000 Variable expenses:     Variable manufacturing expenses $ 122,000   Sales commissions 52,000   Shipping 24,000   Total variable expenses   198,000 Contribution margin   242,000 Fixed expenses:     Advertising (for the bilge pump product line) 21,000   Depreciation of equipment (no resale value) 107,000   General factory overhead 46,000*   Salary of product-line manager 119,000   Insurance on inventories 7,000   Purchasing department 49,000†   Total fixed expenses   349,000 Net operating loss   $ (107,000) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars.   Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.   Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:

 

Thalassines Kataskeves, S.A.
Income Statement—Bilge Pump
For the Quarter Ended March 31
Sales   $ 440,000
Variable expenses:    
Variable manufacturing expenses $ 122,000  
Sales commissions 52,000  
Shipping 24,000  
Total variable expenses   198,000
Contribution margin   242,000
Fixed expenses:    
Advertising (for the bilge pump product line) 21,000  
Depreciation of equipment (no resale value) 107,000  
General factory overhead 46,000*  
Salary of product-line manager 119,000  
Insurance on inventories 7,000  
Purchasing department 49,000  
Total fixed expenses   349,000
Net operating loss   $ (107,000)

*Common costs allocated on the basis of machine-hours.

†Common costs allocated on the basis of sales dollars.

 

Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.

 

Required:

What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?

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