Question

Members of the board of directors of have received the following operating income data for the year just​ ended:

Answer 1

Answer:

a)                           with industrial          without industrial          differential

                             systems                    systems                         amount

sales revenue      640,000                   330,000                        (310,000)

variable COGS     (81,000)                    (48,000)                         33,000

fixed COGS          (298,000)                 (216,000)                       82,000  

gross profit           261,000                    66,000                         (195,000)

variable S&A        (140,000)                   (72,000)                        68,000

fixed S&A             (71,000)                      (56,000)                       15,000  

operating             50,000                      (62,000)                       (112,000)

income

b) contribution margin income statements:

with industrial systems

Sales revenue                         $640,000

- Variable COGS                      ($81,000)

- Variable S&A                        ($140,000)

Contribution margin                $419,000

- Fixed COGS                        ($298,000)

- Fixed S&A                              ($71,000)

Operating income                    $50,000

without industrial systems

Sales revenue                         $330,000

- Variable COGS                      ($48,000)

- Variable S&A                         ($72,000)

Contribution margin                $210,000

- Fixed COGS                         ($216,000)

- Fixed S&A                             ($56,000)

Operating loss                        ($62,000)

c) sometimes certain product lines help to amortize fixed costs and even though they are not profitable by themselves, without them, the company's operating profits and net income could be negatively affected.