FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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A value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body style. Sedans were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed, Crane designed models in different body styles, and those models have outpaced sedans, as follows. Sales Variable costs Contribution margin Fixed costs Operating income (loss) (a) Sedan $1,207,000 Crane would be 697,000 510,000 816,000 $(306,000) SUV $4,210,000 by $ 1,996,000 2,214,000 907,000 $1,307,000 Truck $3,892,000 1,817,000 2,075,000 1,198,000 $877,000 Van $1,998,000 1,108,000 890,000 The income statements above reflect the second consecutive year the sedan category has lost money. Crane is concerned about dropping this vehicle, however, since the company's success was originally built on it. 797,000 $93,000 Crane believes it can save $612,000 in fixed costs associated with the sedans if it drops that vehicle category. Should the company seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan?
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Transcribed Image Text:A value-driven car manufacturer, Crane, started its business more than 50 years ago, making and selling a sedan body style. Sedans were popular at the time, and this one drove the success of Crane for years due to its practical yet stylish nature. As times changed, Crane designed models in different body styles, and those models have outpaced sedans, as follows. Sales Variable costs Contribution margin Fixed costs Operating income (loss) (a) Sedan $1,207,000 Crane would be 697,000 510,000 816,000 $(306,000) SUV $4,210,000 by $ 1,996,000 2,214,000 907,000 $1,307,000 Truck $3,892,000 1,817,000 2,075,000 1,198,000 $877,000 Van $1,998,000 1,108,000 890,000 The income statements above reflect the second consecutive year the sedan category has lost money. Crane is concerned about dropping this vehicle, however, since the company's success was originally built on it. 797,000 $93,000 Crane believes it can save $612,000 in fixed costs associated with the sedans if it drops that vehicle category. Should the company seriously consider dropping it? How much better or worse off, financially, would it be by dropping the sedan?
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