Chapter 12 Full Student Version [Read-Only]

The fixed less fixed expenses general factory

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Unformatted text preview: is dropped. The fixed Less: fixed expenses general factory overhead and general General factory overhead $ 60,000 administrative expenses assigned to this product Salary of line manager 90,000 Depreciation reallocated to other product lines. 50,000 would be of equipment Advertising – direct 100,000 Rent – factory space 70,000 General admin. expenses 30,000 400,000 Net operating loss $ (100,000) Sales $ 500,000 Less: variable expenses Variable manufacturing costs $ 120,000 The equipment used to manufacture Variable shipping costs 5,000 digital watches has no resale Commissions 75,000 200,000 value value or Contribution Contribution marginalternative use. $ 300,000 Less: fixed expenses General factory overhead $ 60,000 Salary of line manager 90,000 Depreciation of equipment 50,000 Should Lovell retain or drop Advertising – direct the digital watch segment? 100,000 Rent – factory space 70,000 General admin. expenses 30,000 400,000 Net operating loss $ (100,000) 12-15 A Contribution Margin Approach Comparative Income Approach Contribution Margin Solution Contribution margin lost if digital watches are dropped $ (300,000) Less fixed costs that can be avoided Salary of the line manager Advertising – direct Rent – factory space Net disadvantage $ $ 12-16 90,000 100,000 70,000 260,000 (40,000) The Lovell solution can also be obtained by preparing comparative income statements showing results with and without the digit...
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