Problem 6 (10 points): Armor S income statement data for the most recent year is
ID: 2518311 • Letter: P
Question
Problem 6 (10 points): Armor S income statement data for the most recent year is as follows: ports, Inc. has two product lines-baseball bats and tennis rackets. The les revenue ariable costs Total Baseball Bats Tennis Rack $950,00 $600,00 $350,00 ntribution margin ixed costs perating income $460,00 $400,00 560,00 (100.000) $330,000 SL40.000) What is the effect of dropping tennis rackets line on the operating income of the company? (Assume that $20,000 fixed costs is avoidable and that there would be no adverse effect on other sales.) Problem 7 (10 points): Victoria, Inc, is considering replacing a machine. The following data are available: Replacement Old Machine Machine $90,000 $70,000 Original cost Useful life in years Current age in years Book value Disposal value now Disposal value in 5 years Annual cash operating costs $14,000 10 $50,000 $16,000 $8,000 For each item above, indicate below whether it is a sunk cost(SC),irrelevant (1),or relevant (R) to the decision.Explanation / Answer
6) Differential analysis :
Net operating income of whole company decrease by $40000 if product drop
Net loss if product continue -40000 Net loss if product drop (100000-20000) -80000 Net effect of product drop -40000