Expenses 30000 same under both alternatives same

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: tives, same under both alternatives, Total fixed expenses 400,000 so it is irrelevant. Net operating loss $ (100,000) it is irrelevant. so 10-27 Comparative Income Approach Solution Keep Drop Digital Digital W atches W atches Difference Sales $ 500,000 $ $ (500,000) Less variable expenses: The salary of the product- line of the Manufacturing expenses The salary120,000 product line 120,000 manager would disappear, so Shipping 5,000 5,000 manager would disappear, so Commissions 75,000 75,000 iit is relevant to the decision. t is relevant to the decision. Total variable expenses 200,000 200,000 Contribution margin 300,000 (300,000) Less fixed expenses: General factory overhead 60,000 60,000 Salary of line manager 90,000 90,000 Depreciation 50,000 Advertising - direct 100,000 Rent - factory space 70,000 General admin. expenses 30,000 Total fixed expenses 400,000 Net operating loss $ (100,000) 10-28 Comparative Income Approach Solution Keep Drop Digital Digital W atches W atches Difference Sales $ 500,000 $ $ (500,000) Less he depreciation is a sunk cost. Also, remember that T variable expenses: is a sunk cost. Also, remember that The depreciation Mthe equipment has no resale value or alternative use, anufacturing expenses 120,000 120,000 the equipment has no resale 5,000 or alternative use, value Shipping 5,000 so the equipment and the depreciation expense 75,000 so the depreciation -expense Commissions equipment and the 75,000 Total variable expenses 200,000 associated with it are irrelevant to the decision.200,000 associated with it are irrelevant to the decision. Contribution margin 300,000 (300,000) Less fixed expenses: General factory overhead 60,000 60,000 Salary of line manager 90,000 90,000 Depreciation 50,000 50,000 Advertising - direct 100,000 Rent - factory space 70,000 General admin. expenses 30,000 Total fixed expenses 400,000 Net operating loss $ (100,000) 10-29 Comparative Income Approach Solution Keep Drop Digital Digital W atches W atches Difference Sales $ 500,000 $ $ (500,000) Less variable expenses: Manufacturing expenses 120,000 120,000 The complete comparative Shipping 5,000 5,000 The complete comparative Commissions 75,000 iincome statements reveal that 75,000 ncome statements reveal that 200,000 Total variable expenses 200,000 Lovell would earn $40,000 of (300,000) Lovell would earn $40,000 of Contribution margin 300,000 Less fixed expenses: additional profit by retaining the additional profit by retaining the General factory overhead 60,000 60,000 digital watch line.digital watch line. Salary of line manager 90,000 90,000 Depreciation 50,000 50,000 Advertising - direct 100,000 100,000 Rent - factory space 70,000 70,000 General admin. expenses 30,000 30,000 Total fixed expenses 400,000 140,000 260,000 Net operating loss $ (100,000) $ (140,000) $ (40,000) 10-30 Beware of Allocated Fixed Costs Why should we keep the Why digital watch segment when it’s showing a $100,000 loss? $100,000 loss 10-31 Beware of Allocated Fixed Costs The answer lies in the way we allocate common fixed costs to our products. 10-32 Beware of Allocated Fixed Costs Incl...
View Full Document

Ask a homework question - tutors are online