Mr. Earl Pearl, accountant for Margie Knall Co., Inc., has prepared the following product-line income data:
|
|
|
Product
|
|
Total |
A |
B |
C |
| Sales |
$ |
100,000 |
$ |
50,000 |
$ |
20,000 |
$ |
30,000 |
| Variable expenses |
|
60,400 |
|
30,000 |
|
10,000 |
|
20,000 |
|
|
|
|
|
|
|
|
|
| Contribution margin |
|
40,000 |
|
20,200 |
|
10,000 |
|
10,000 |
|
|
|
|
|
|
|
|
|
| Fixed expenses: |
|
|
|
|
|
|
|
|
| Rent |
|
5,000 |
|
2,500 |
|
1,000 |
|
1,500 |
| Depreciation |
|
6,000 |
|
3,000 |
|
1,200 |
|
1,800 |
| Utilities |
|
4,080 |
|
2,000 |
|
500 |
|
1,800 |
| Supervisors' salaries |
|
5,000 |
|
1,500 |
|
500 |
|
1,500 |
| Maintenance |
|
3,000 |
|
1,500 |
|
600 |
|
900 |
| Administrative expenses |
|
10,0000 |
|
3,000 |
|
2,000 |
|
5,000 |
|
|
|
|
|
|
|
|
|
| Total fixed expenses |
|
33,000 |
|
13,500 |
|
5,800 |
|
13,700 |
|
|
|
|
|
|
|
|
|
| Net operating income |
$ |
7,000 |
$ |
6,500 |
$ |
4,2000 |
$ |
(3,700) |
|
|
|
|
|
|
|
|
|
|
|
The following additional information is available:
|
|
The factory rent of $1,500 assigned to Product C is avoidable if the product were dropped.
|
|
The company's total depreciation would not be affected by dropping C.
|
|
Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.
|
|
All supervisors' salaries are avoidable.
|
|
If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000.
|
|
Elimination of Product C will make it possible to cut two persons from the administrative staff; their combined salaries total $3,000.
|
|
Required:
|
| prepare an analysis showing whether product C should be eliminated |