Both scented and musical product line profits

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Unformatted text preview: Both scented and musical product-line profits increase. However, more must be done. If the scented and musical product margins remain negative, the two products may need to be dropped. 2. Sales Less: Variable expenses Contribution margin Less: Fixed expenses Operating income (loss) Regular $ 20,000 10,000 $ 10,000 10,500 $ (500) Dropping the two lines would still result in a loss. Other options need to be developed. 3. Combinations would be beneficial. Dropping the musical line (which shows the greatest segment loss) and keeping the scented line while increasing advertising yields a profit (the optimal combination). Scented $ 13,000 9,100 $ 3,900 4,250 $ (350) Sales Less: Variable expenses Contribution margin Less: Direct fixed expenses Product margin Less: Common fixed expenses Operating income 334 Regular $ 22,500 11,250 $ 11,250 3,000 $ 8,250 Total $ 35,500 20,350 $ 15,150 7,250 $ 7,900 7,500 $ 400 10–21 1. Direct materials Direct labor Variable overhead Fixed overhead ($180,000/200,000) Total $3.60 2.00 0.40 0.90 $ 6.90 Per-unit inventory cost on the balance sheet is $6.90. Sales (207,000 × $10) Less: Cost of goods sold Gross margin Less: Selling and administrative expenses Net income 2. Direct materials Direct labor Variable overhead Total $ 2,070,000 1,428,300 $ 641,700 132,100 $ 509,600 $ 3.60 2.00 0.40 $ 6.00 Per-unit inventory cost under variable costing equals $6.00. This differs from the per-unit inventory cost in Requirement 1 because the balance sheet is for external use and reflects absorption costing. Variable costing does not include per-unit fixed overhead. Sales Less variable expenses: Variable cost of goods sold Variable selling and administrative Contribution margin Less fixed expenses: Fixed overhead Fixed selling and administrative Net income 3. IV – IA $515,900 – $509,600 $6,300 $6,300 = FOR(Sales – Production) = $0.90(207,000 – 200,000) = $0.90(7,000) = $6,300 335 $ 2,070,000 1,242,000 62,100 $ 765,900 $ 180,000 70,000 515,900 5. Sales...
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