Kenmore Company manufactures two products. Both products have the same sales price, and the volume of sales is equivalent.
Kenmore Company manufactures two products. Both products have the same sales price, and the volume of sales is equivalent.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Kenmore
Company manufactures two products. Both products have the same sales price, and the volume of sales is equivalent. However, due to the difference in production processes, Product A has higher variable costs and Product B has higher fixed costs. Management is considering dropping Product B because that product line has an operating loss.Kenmore Company
Income Statement
Month Ended June 30, 2018
Total
Product A
Product B
Net Sales Revenue
$150,000 $75,000 $75,000
Variable Costs
128,750 64,500 64,250
Contribution Margin
21,250 10,500 10,750
Fixed Costs
36,000 3,600 32,400
Operating Income/(Loss)
$(14,750) $6,900 $(21,650)
|
If fixed costs cannot be avoided, should
Kenmore
drop Product B? Why or why not? |
|
|
10.
|
If 50% of Product B's fixed costs are avoidable, should
Kenmore
drop Product B? Why or why not? |
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