50.1K

Verified Solution

Link Copied!

Dexter Products, Inc., manufactures and sells a number of items, including an overnight case. The company has been experiencing losses on the overnight case for some time, as shown on the following contribution format income statement:

Dexter Products, Inc. Income StatementOvernight Cases For the Quarter Ended June 30
Sales				$	440,000
Variable expenses:
Variable manufacturing expenses	$	139,000
Sales commissions		52,000
Shipping		19,000
Total variable expenses					210,000
Contribution margin					230,000
Fixed expenses:
Salary of product-line manager		22,000
General factory overhead		111,000	*
Depreciation of equipment (no resale value)		41,000
Advertisingtraceable		125,000
Insurance on inventories		8,000
Purchasing department		51,000
Total fixed expenses					358,000
Net operating loss				$	(128000	)

*Allocated on the basis of machine-hours.

Allocated on the basis of sales dollars.

Discontinuing the overnight cases would not affect the companys sales of its other product lines, its total general factory overhead, or its total purchasing department expenses.

Required
a.	Compute the increase or decrease of net operating income if the overnight case are continued or discontinued. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive except Decreases in Sales, Decreases in Contribution Margin, and Net Losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

	Keep Overnight Cases	Drop Overnight Cases	Net Operating Income
Sales	$	$	$
Variable expenses:
Variable manufacturing expenses
Sales commissions
Shipping
Total variable expenses
Contribution margin
Fixed expenses:
Salary of line manager
General factory overhead
Depreciation of equipment
Advertisingtraceable
Insurance on inventories
Purchasing department
Total fixed expenses
Net operating Income (loss)	$	$	$

b.	Would you recommend that the company discontinue the manufacture and sale of overnight cases?
	Yes No

Answer & Explanation Solved by verified expert

See Answer