Answer:
<u>Incremental costs and revenues determination :</u>
Sales ($494,000)
Variable Expense $361,000
Fixed Expenses ( $150,000 - $37,000) $113,000
Incremental Income/ (loss) ($20,000)
<u>Conclusion</u>
the company should not eliminate the gloves and mittens line.
Explanation:
To determine whether the company should eliminate the gloves and mittens line, we have to look into the incremental costs and revenues that come with this action.
<u>Incremental costs and revenues determination :</u>
Sales ($494,000)
Variable Expense $361,000
Fixed Expenses ( $150,000 - $37,000) $113,000
Incremental Income/ (loss) ($20,000)
Before the gloves and mittens line was eliminated, they contributed a net loss of $17,000 to overall Company Manufacturing Activities. the elimination of gloves and mittens line has a financial disadvantage of $20,000 - the amount which is greater than the existing net loss.
Eliminating the gloves and mittens line leaves the Company at a worse off position of $20,000. Thus the company should not eliminate the gloves and mittens line.