4 Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. 1. 2. 3 Sales Variable costs: Cost of goods sold Belling & adninistrative contribution margin Fixed expenses Fixed corporate coats Fixed selling and administrative Total fixed expenses Operating income T-1 $300,000 90,000 15,000 $195,000 Required % increase in sales from T-1 Required % increase in sales from T-1 80,000 32,000 $112,000 $83,000 Required: 1. Find the expected change in annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 7-2 $ 340,000 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $58,500? (Enter your answer as a percentage rounded to 2 decimal places (.e. 0.1234 should be entered as 12.34).) 170,000 70,000 $100,000 % 95,000 41,000 $ 136,000 $(36,000)
4 Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but the firm's cost structure will remain the same. 1. 2. 3 Sales Variable costs: Cost of goods sold Belling & adninistrative contribution margin Fixed expenses Fixed corporate coats Fixed selling and administrative Total fixed expenses Operating income T-1 $300,000 90,000 15,000 $195,000 Required % increase in sales from T-1 Required % increase in sales from T-1 80,000 32,000 $112,000 $83,000 Required: 1. Find the expected change in annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 7-2 $ 340,000 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $58,500? (Enter your answer as a percentage rounded to 2 decimal places (.e. 0.1234 should be entered as 12.34).) 170,000 70,000 $100,000 % 95,000 41,000 $ 136,000 $(36,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and
innovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. The
sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1.
Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements
(see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10 percent next year, but
the firm's cost structure will remain the same.
Sales
Variable costa:
Cost of goods sold
Belling
contribution margin
administrative
Fixed expenses
Fixed corporate costs
Fixed selling and administrative
Total fixed expenses
Operating income
7-1
$ 300,000
90,000
15,000
$195,000
1.
2. Required % increase in sales from T-1
3: Required % increase in sales from T-1
80,000
32,000
$112,000
$83,000
7-2
$ 340,000
170,000
70,000
$100,000
Required:
1. Find the expected change in annual operating income by dropping T-2 and selling only T-1.
2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your
answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
%
95,000
41,000
$136,000
$(36,000)
3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be
reduced by $58,500? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)
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