Question

Carla Vista Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $500,000, variable expenses of $360,000, and fixed expenses of $148,000. Therefore, the gloves and mittens line had a net loss of $8,000. If Carla Vista eliminates the line, $36,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line.

Answer 1

Answer and Explanation:

The Preparation of analysis showing whether the company should eliminate the gloves and mittens line is shown below:-

Particulars           Continue                  Eliminate                Net Income

                                                                                     Increase (Decrease)

Sales                   $500,000                     0                           ($500,000)

Variable

expenses           $360,000                      0                            $360,000

Contribution

margin               $140,000                       0                             ($140,000)

Fixed costs       $148,000                   $36,000                     $112,000

Net income      ($8,000)                     ($36,000)                   ($28,000)

The analysis showing that the Carla Vista Corporation should manufacture gloves and mittens else there loss will be increased by $28,000