Metron Company produces three lines of products: A, B, and C. Two products are d
ID: 2510694 • Letter: M
Question
Metron Company produces three lines of products: A, B, and C. Two products are doing well, but C does not. Information on the products follows: Sales Variable costs Direct fixed costs Allocated common fixed costs CTotal $154,000$107,800$46,200 $308,000 107,800 72,800 35,700216,300 4,4803,3604,20012,040 23,52016,464 7,05647,040 S18,200 $15,176$756)$32,620 NOINOL) Treat a and b as independent cases. a. If Metron eliminates product C, what will be the change in NOl for the company? D. If Metron eliminates product C, sales of A will increase 10% and sales of B will increase 5%, what will be the change in income if they eliminate C? MacBook Pro
Explanation / Answer
(a) If Metron Company eliminates product C, then the NOI for the company will decrease by $6,300.
A
B
Total
Sales
154,000
107,800
308,000
Variable Cost
107,800
72,800
216,300
Direct Fixed cost
4,480
3,360
7,840
Allocated common fixed cost
27,671
19,369
47,040
NOI (NOL)
14,049
12,271
26,320
Allocated Common fixed Cost of A = 23,520 + {7,056 * 23520/(23520+16464)}
= 23,520 + 4151
= 27,671
Allocated common fixed cost of B= 16,464 + {7,056 * 16464/(23520+16464)}
= 16,464 + 2,905
(b) If Metron Company eliminates product C, sales of A will increase by 10% and sales of B will increase 5%. Thus the change in income if they eliminate C will be as follows:
A
B
Total
Sales
169,400
113,190
282,590
Variable Cost
118,580
76,440
195,020
Direct Fixed cost
4,480
3,360
7,840
Allocated common fixed cost
27,671
19,369
47,040
NOI (NOL)
18,669
14,021
32,690
Thus NOI will increase by $70.
Workings:
Sales of A = 154,000 + 10% = 169,400
Variable cost of A = 107,800 + 10% = 118,580
Allocated Common Cost = 23,520 + {7,056 * 23520/(23520+16464)}
= 23,520 + 4151
= 27,671
Sales of B = 107,800 + 5% = 113,190
Variable Cost of B = 72,800 + 5% = 76,440
Allocated common fixed cost = 16,464 + {7,056 * 16464/(23520+16464)}
= 16,464 + 2,905
= 19,369
A
B
Total
Sales
154,000
107,800
308,000
Variable Cost
107,800
72,800
216,300
Direct Fixed cost
4,480
3,360
7,840
Allocated common fixed cost
27,671
19,369
47,040
NOI (NOL)
14,049
12,271
26,320