None Exercise 11-27 (Algo) Product-Line Profitability Analysis [LO 11-5]Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality andInnovation. Recently, the firm conducted a relevant cost analysis of one of its product lines that has only two products, T-1 and T-2. Thesales 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, butthe firm's cost structure will remain the same.SalesVariable costs:Cost of goods soldSelling & administrativeContribution marginFixed expenses:Fixed corporate costsFixed selling and administrativeTotal fixed expensesOperating incomeRequired:T-1$ 280,00086,00012,000$ 182,00076,00028,000$ 104,000T-2$ 324,000162,00066,000$ 96,00091,00037,000$ 128,000$ 78,000$ (32,000)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 youranswer as a percentage rounded to 2 decimal places (l.e. 0.1234 should be entered as 12.34).)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 bereduced by $52,500? (Enter your answer as a percentage rounded to 2 decimal places (1.e. 0.1234 should be entered as 12.34).)1. Net income on discontinuing T-22. Required % increase in sales from T-13. Required % increase in sales from T-1$32,00017.58 %25.00 %

Variable costsVariable costs are costs that vary with the change in the level of output.Fixed…

Exercise 11-27 (Algo) Product-Line Profitability Analysis [LO 11-5] 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. Fixed expenses: T-1 $ 280,000 86,000 12,000 $ 182,000 76,000 28,000 T-2 $ 324,000 162,000 66,000 $ 96,000 91,000 37,000 Sales Variable costs: Cost of goods sold Selling & administrative Contribution margin Fixed corporate costs Fixed selling and administrative Total fixed expenses Operating income Required: $ 104,000 $ 128,000 $ 78,000 $ (32,000) 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 (l.e. 0.1234 should be entered as 12.34).) 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 $52,500? (Enter your answer as a percentage rounded to 2 decimal places (1.e. 0.1234 should be entered as 12.34).) 1. Net income on discontinuing T-2 2. Required % increase in sales from T-1 3. Required % increase in sales from T-1 $ 32,000 17.58 % 25.00 %

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter12: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 12.4E