The following operating income data about the performance of the two product lines: Sales revenue. Cost of goods sold: Variable.. Fixed.. Total cost of goods sold.. Gross profit... Marketing and administrative expenses: Variable.. Fixed.. Total marketing and administrative expenses Operating income (loss)... Product Line Industrial Household Systems Systems Total $330,000 $360,000 $690,000 $ 35,000 250,000 $285,000 $ 45,000 62,000 39,000 $101,000 $(56,000) Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall $44,000 $79,000 67,000 317,000 $111,000 $396,000 $249,000 $294,000 76,000 138,000 23,000 62,000 $99,000 $200,000 $150,000 $ 94,000 The product line is losing money so with a commission study it will determine whether the company should discontinue the product line. Company accountants estimate that discontinuing, will decrease fixed cost of goods sold by $81,000 and decrease fixed marketing and administrative expenses by $14,000. Production engineers believe that by cutting down on project expenses the company could save another $100,000 of fixed cost of goods sold from the product line (GREEN). 1. Using an incremental analysis approach (only relevant information) clearly calculate whether HVFP should discontinue the product line. Your analysis should first show the results without the GREEN savings and then show the results with the GREEN savings. 2. Prepare contribution margin income statements to show HVFP's total operating income under the three alternatives (a) with the industrial systems product line, (b) without the industrial systems product line, and (c) without the industrial systems product line and including the GREEN savings.
The following operating income data about the performance of the two product lines: Sales revenue. Cost of goods sold: Variable.. Fixed.. Total cost of goods sold.. Gross profit... Marketing and administrative expenses: Variable.. Fixed.. Total marketing and administrative expenses Operating income (loss)... Product Line Industrial Household Systems Systems Total $330,000 $360,000 $690,000 $ 35,000 250,000 $285,000 $ 45,000 62,000 39,000 $101,000 $(56,000) Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall $44,000 $79,000 67,000 317,000 $111,000 $396,000 $249,000 $294,000 76,000 138,000 23,000 62,000 $99,000 $200,000 $150,000 $ 94,000 The product line is losing money so with a commission study it will determine whether the company should discontinue the product line. Company accountants estimate that discontinuing, will decrease fixed cost of goods sold by $81,000 and decrease fixed marketing and administrative expenses by $14,000. Production engineers believe that by cutting down on project expenses the company could save another $100,000 of fixed cost of goods sold from the product line (GREEN). 1. Using an incremental analysis approach (only relevant information) clearly calculate whether HVFP should discontinue the product line. Your analysis should first show the results without the GREEN savings and then show the results with the GREEN savings. 2. Prepare contribution margin income statements to show HVFP's total operating income under the three alternatives (a) with the industrial systems product line, (b) without the industrial systems product line, and (c) without the industrial systems product line and including the GREEN savings.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The following operating income data about the performance of the two product lines:
Sales revenue.
Cost of goods sold:
Variable..
Fixed...
Total cost of goods sold.
Gross profit..
Marketing and administrative expenses:
Variable..
Fixed..
Total marketing and administrative expenses
Operating income (loss)....
Product Line
Industrial
Systems
$330,000
Household
Systems
Total
$360,000 $690,000
$ 35,000 $44,000 $79,000
250,000
67,000 317,000
$285,000
$ 45,000
Copyright © 2013 Pearson Education, Inc., publishing as Prentice Hall
$111,000
$396,000
$249,000 $294,000
62,000
39,000
$101,000
$99,000 $200,000
$ (56,000) $150,000 $94,000
76,000 138,000
23,000
62,000
The product line is losing money so with a commission study it will determine whether the
company should discontinue the product line. Company accountants estimate that
discontinuing, will decrease fixed cost of goods sold by $81,000 and decrease fixed
marketing and administrative expenses by $14,000. Production engineers believe that by
cutting down on project expenses the company could save another $100,000 of fixed cost
of goods sold from the product line (GREEN).
1. Using an incremental analysis approach (only relevant information) clearly
calculate whether HVFP should discontinue the product line. Your analysis
should first show the results without the GREEN savings and then show the
results with the GREEN savings.
2. Prepare contribution margin income statements to show HVFP's total
operating income under the three alternatives (a) with the industrial systems
product line, (b) without the industrial systems product line, and (c) without
the industrial systems product line and including the GREEN savings.
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