“If the Micro Division is eliminated,” she said, “our total profits would increase by $23,870.”The Other MicroFive Divisions Division TotalSales $1,664,200 $ 96,200 $1,760,400Cost of goods sold 978,520 76,470 1,054,990Gross profit 685,680 19,730 705,410Operating expenses 527,940 43,600 571,540Net income $ 157,740 $(23,870) $ 133,870In the Micro Division, cost of goods sold is $70,000 variable and $6,470 fixed, and operat-ing expenses are $15,000 variable and $28,600 fixed. None of the Micro Division’s fixed costs will be eliminated if the division is discontinued.InstructionsIs Jamie right about eliminating the Micro Division? Prepare a schedule to sup-port your answer.E20-16BNorton Company makes three models of phasers. Information on the three prod-ucts is given on next page.Make incremental analysis for elimination of division.(LO 6)Make incremental analysis for elimination of a product line.Calculate contribution margin and prepare incremental analysis concerning keeping or dropping a product to maximize operating income.(LO 1, 6)Shocker Stunner ParalyzerSales$360,000 $540,000 $200,000Variable expenses 160,000 200,000 130,000Contribution margin 200,000 340,000 70,000Fixed expenses 120,000 225,000 100,000Net income $ 80,000 $ 115,000 $ (30,000)(LO 6)
6 20Incremental AnalysisFixed expenses consist of $400,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $10,000 (Shocker), $30,000 (Stunner), and $5,000 (Paralyzer). The common costs will be incurred regardless of how many models are produced. The other fixed expenses would be eliminated if a model is phased out.Rick Manley, an executive with the company, feels the Paralyzer line should be discon-tinued to increase the company’s net income.Instructions(a) Compute current net income for Norton Company.(b) Compute net income by product line and in total for Norton Company if the company discontinues the Paralyzer product line. (Hint:Allocate the $400,000 common costs to the two remaining product lines based on their relative sales.)(c) Should Norton eliminate the Paralyzer product line? Why or why not?
Exercises: Set B1E21-1BJargon Electronics Inc. produces and sells two models of calculators, XQ-103 and XQ-104. The calculators sell for $10 and $20, respectively. Because of the intense competi-tion Jargon faces, management budgets sales semiannually. Its projections for the first 2 quarters of 2017 are as follows.Unit SalesProduct Quarter 1 Quarter 2XQ-103 20,000 25,000XQ-104 10,000 16,000No changes in selling prices are anticipated.InstructionsPrepare a sales budget for the 2 quarters ending June 30, 2017. List the products and show for each quarter and for the 6 months, units, selling price, and total sales by product and in total.E21-2BVarga and Menendez, CPAs, are preparing their service revenue (sales) budget for the coming year (2017). The practice is divided into three departments: auditing, tax, and consulting. Billable hours for each department, by quarter, are provided below.Department Quarter 1 Quarter 2 Quarter 3 Quarter 4Auditing2,200 1,600 2,000 2,400Tax3,000 2,400 2,000 2,500Consulting1,5001,5001,5001,500Average hourly billing rates are: auditing $60, tax $70, and consulting $80.InstructionsPrepare the service revenue (sales) budget for 2017 by listing the departments and show-ing for each quarter and the year in total, billable hours, billable rate, and total revenue.E21-3BVilla Company produces and sells automobile batteries, the heavy-duty HD-240. The