The Clemson Company reported the following results last year for the manufacture
ID: 2451406 • Letter: T
Question
The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam.
Sales (6,500 Tams at $130 each) $845,000
Variable cost of sales 390,000
Variable distribution costs 65,000
Fixed advertising expense 275,000
Salary of product line manager 25,000
Fixed manufacturing overhead 145,000
Net loss ($55,000)
Clemson Company is trying to determine whether or not to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturiing costs of the company.
If the company discontinues the Tam product line, net operating income (or loss) will decrease by what amount? (Worth 2.5 pts.) SHOW ALL WORK FOR CREDIT!
What are some considerations the companies managers may want to take into account when making the decision to discontinue a product line, department, or other segment? (Worth 1.5 pts. – must list a minimum of three factors.)
Explanation / Answer
The Clemson Company reported the following results last year for the manufacture