Question

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows:
Thalassines Kataskeves, S.A.Income Statement-Bilge PumpFor the Quarter Ended March 31
Sales $450,000Variable expenses: Variable manufacturing expenses $128,000 Sales commissions 54,000 Shipping 15,000 Total variable expenses 197,000Contribution margin 253,000Fixed expenses: Advertising 23,000 Depreciation of equipment (no resale value) 112,000 General factory overhead 49,000* Salary of product-line manager 118,000 Insurance on inventories 6,000 Purchasing department 40,000 Total fixed expenses 348,000Net operating loss $(95,000)Common costs allocated on the basis of machine-hours.
Common costs allocated on the basis of sales dollars.
Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company's total general factory overhead or total Purchasing Department expenses.Required:a. Compute the increase or decrease of net operating income, if the product line is continued or discontinued. (Decreases should be indicated by a minus sign.)b. Would you recommend that the bilge pump product line be discontinued?NoYes

Answer 1

Answer:The answer is $95,000 Loss

Explanation:

Income statement

$

Sales. 450,000

Less:variable cost.

Manufacturing expenses 128,000

Sales commission. 54,000

Shipping. 15,000

---------------- 197,000

-----------------

Contribution. 253,000

Less Fixed Overhead

Advertising. 23,000

Depreciation. 112,000

General factory overhead 49,000

Salary of production line manager 118,000

Insurance on inventories. 6,000

Purchasing department. 40,000

-----------------

348,000

-----------------

Profit/Loss. ( 95,000) Loss

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Based on the income statement that showed a loss of $95,000 or decrease in operating income, Yes I would recommend that bilge pump product be discontinued.