Assume a company is considering dropping product B from its line because accounting statements

| March 31, 2017

Question
Assume a company is considering dropping product B from its line because accounting statements shows that product B is being sold at a loss.

Income Statement

Product

A

B

C

Total

Sales revenue

50,000

7,500

12,500

70,000

Cost of sales:

D. Material

7,500

1,000

1,500

10,000

D. Labour

15,000

2,000

2,500

19,500

Indirect manufacturing cost (50% of Direct labour)

7,500

1,000

1,250

9,750

Total

30,000

4,000

5,250

39,250

Gross margin On sales

20,000

3,500

7,250

30,750

Selling & Admn

12,500

4,500

4,000

21,000

Net income

7,500

(1,000)

3,250

9,750

Additional information:

a) Factory Overhead cost is made up of fixed cost of $5850 and variable cost of $3900.

b) Variable cost by products are: A – Rs 3000, B – Rs 400 and C – Rs 500

c) Fixed costs and expense will not be changed if product B is eliminated

d) Variable selling and administrative expenses are to the extent of $11000 can be traced to the product: A-$7,500; B- $1500 and
C- $2000

e) Fixed selling and admin expense are $10000

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