Cost Accounting - Please kindly help answer (2) blanks with shown work! thanks!!
ID: 2425783 • Letter: C
Question
Cost Accounting - Please kindly help answer (2) blanks with shown work! thanks!!
Keep-or-Drop Decisions
Example: Ginger Company makes three types of microwave ovens. Basic is the small 0.7 cubic foot model sold at discount stores. Countertop is a larger (1.2 cubic foot) model with more advanced features. Built-in is a model designed to fit into cabinetry and is sold through appliance stores. A segmented income statement is shown below.
Ginger Company believes the basic model is a concern and is considering a number of options to deal with this situation. One possibility is to drop the Basic line. If that is done, operating income will be $**BLANK** higher
After further study, Ginger Company has found that if the Basic Model is dropped, sales of the Countertop model will decrease by 5 percent as some stores prefer to order only from a company with both basic and countertop models. Now if the Basic line is dropped, operating income will be $**BLANK**lower than if the Basic line is kept. (round to nearest dollar).
Basic Countertop Built-In Total Sales $203,920 $864,930 $735,170 $1,804,020 Variable COGS 184,360 301,780 351,990 838,130 Commissions 5,830 44,125 36,065 86,020 Contribution margin $13,730 $519,025 $347,115 $879,870 Separable fixed expense 29,085 75,715 175,630 280,430 Segment margin $(15,355) $443,310 $171,485 $599,440 Common fixed expenses: Factory overhead 216,890 Selling and administrative expense 290,570 Operating income $91,980Explanation / Answer
Original Statement showing computations Particulars Basic Countertop Built-In Total Sales 203,920.00 864,930.00 735,170.00 1,804,020.00 Variable COGS 184,360.00 301,780.00 351,990.00 838,130.00 Commissions 5,830.00 44,125.00 36,065.00 86,020.00 Contribution margin 13,730.00 519,025.00 347,115.00 879,870.00 Separable fixed expense 29,085.00 75,715.00 175,630.00 280,430.00 Segment margin (15,355.00) 443,310.00 171,485.00 599,440.00 Common fixed expenses: Factory overhead 216,890.00 Selling and administrative expense 290,570.00 Operating income 91,980.00 1) If Basic is dropped Statement showing computations Particulars Countertop Built-In Total Sales 864,930.00 735,170.00 1,600,100.00 Variable COGS 301,780.00 351,990.00 653,770.00 Commissions 44,125.00 36,065.00 80,190.00 Contribution margin 519,025.00 347,115.00 866,140.00 Separable fixed expense 75,715.00 175,630.00 251,345.00 Segment margin 443,310.00 171,485.00 614,795.00 Common fixed expenses: Factory overhead 216,890.00 Selling and administrative expense 290,570.00 Operating income 107,335.00 Ifoption 1 is done, operating income will be $15,355 higher Option 2 - If dropped and effect on sales of countertiop If Basic is dropped Statement showing computations Particulars Countertop Built-In Total Sales 821,683.50 735,170.00 1,556,853.50 Variable COGS 286,691.00 351,990.00 638,681.00 Commissions 41,918.75 36,065.00 77,983.75 Contribution margin 493,073.75 347,115.00 840,188.75 Separable fixed expense 75,715.00 175,630.00 251,345.00 Segment margin 417,358.75 171,485.00 588,843.75 Common fixed expenses: Factory overhead 216,890.00 Selling and administrative expense 290,570.00 Operating income 81,383.75 Ifoption 1 is done, operating income will be $10,596.25 Lower