Bravo Baking Co has expanded its prodict line to include several other specialty
ID: 2384932 • Letter: B
Question
Bravo Baking Co has expanded its prodict line to include several other specialty breads. The operating results for the last quarter are providedProduct Hi-Lo WholeGrain Fruit & Nuts Total
Revenues $67,575 $31,800 $15,900 $115,275
Variable product costs $27,030 $12,720 $6,360 $46,110
Variable Selling & Administrative costs $13,515 $6,360 $3,180 $23,055
Conreibution margin $27,030 $12,720 $6,360 $46,110
Fixed Product Costs $5,000 $5,000 $5,000 $15,000
Fixed Selling and Administrative Costs $5,700 $2,850 $2,850 $11,400
Allocated Common Costs $5,000 $2,500 $2,500 $10,000
Net Income $11,330 $2,370 ($3,990) $9,710
Required: Bravo wants to know the effect on Net Income if it decides to discontinue the Fruit & Nuts product.
If Bravo elimates Fruit & Nuts 50% of fixed costs can be avoided.
Prepare and increnental analysis showing the Net Income Effect of eliminating the Fruit & Nuts product.
What would you advise Bravo to do?
Usinf the Table below, compute the Net Income for Bravo Baking after eliminating the Fruit & Nuts product.
Product Hi-Lo Whole Grain Fruit& Nuts Total
Revenues
Variable product costs
Variable Selling & Administrative costs
Contribution Margin
Contribution Margin
Fixed Product Costs
Fixed Selling and Administrative Costs
Allocated Common Costs
Net Income
Explanation / Answer
Hi lo Whole Grain Fruit and nuts Total After elimination Incremental Revenues 67575 31800 15900 115275 99375 -15900 Variable product costs 27030 12720 6360 46110 39750 -6360 Variable Selling & Administrative costs 13515 6360 3180 23055 19875 -3180 Contribution Margin 27030 12720 6360 46110 39750 -6360 Fixed Product Costs 5000 5000 5000 15000 12500 -2500 Fixed Selling and Administrative Costs 5700 2850 2850 11400 9975 -1425 Allocated Common Costs 5000 2500 2500 10000 10000 0 Net icnome 11330 2370 -3990 9710 7275 -2435 The company should not close fruit and nuts department as it will decrease the profit by 2435