The officers of Bradshaw Company are reviewing the profitability of the company's four products and the potential effect of several proposals for varying the product mix. An excerpt from the income statement and other data follow:
Particulars Total Product
P Q R S
Sales $ 62,600 $ 10,000 $ 18,000 $ 12,600 $ 22,000
Cost of goods sold 44,247 4,750 7,056 13,968 18,500
Gross profit 18,326 5,250 10,944 (1,368) 3,500
Operating expenses 12,012 1,990 2,976 2,826 4,220
Income before income taxes 6,314 3,260 7,968 (4,194) (720)
Units sold 1,000 1,200 1,800 2,000
Sales price per unit 10.00 15.00 7.00 11.00
Per unit Variable cost of goods sold 2.50 3.00 6.50 6.00
Per unit Variable operating expenses per unit 1.17 1.25 1.00 1.20
Each of the following proposals is to be considered independently of the other proposals. Consider only the product changes stated in each proposal; the activity of other products remains stable. (Ignore income taxes)
a. If product R is discontinued, what will be the effect on income?
b. If product R is discontinued and a consequent loss of customers causes a decrease of 200 units in sales of Q, what will be the total effect on income?
c. If the sales price of R is increased to $8 with a decrease in the number of units sold to 1,500, what will be the effect on income?
d. The plant in which R is produced can be utilized to produce a new product T. The total variable costs and expenses per unit of T are $8.05, and 1,600 units can be sold at $9.50 each. If T is introduced and R is discontinued, what will be the total effect on income?
e. Part of the plant in which P is produced can easily be adapted to the production of S, but changes in quantities may make changes in sales price advisable. If production of P is reduced to 500 units (to be sold at $12 each) and production of S is increased to 2,500 units (to be sold at $10.50 each), what will be the total effect on income?
f. Production of P can be doubled by adding a second shift, but higher wages must be paid, increasing variable cost of goods sold to $3.50 for each of the additional units. If the 1,000 additional units of P can be sold at $10 each, what will be the total effect on income?