(TCO H) Mr. Earl Pearl, accountant for Margie Knall, Inc

(TCO H) Mr. Earl Pearl, accountant for Margie Knall, Inc. has prepared the following product-line income data.

PRODUCT
Total            A                B                     C

Sales…………………………………………$ 100,000……..$50,000………$20,000………..$30,000

Variable expenses…………………………  60,000……….30,000…………10,000………….20,000

Contribution margin……………………….. .40,000……….20,000…………10,000………….10,000

Fixed expenses:

Rent…………………………………………. .5,000………..2,500…………..1,000……………1,500

Depreciation………………………………. 6,000………..3,000…………..1,200…………….1,800

Utilities………………………………………4,000………..2,000……………..500…………….1,500

Supervisors’ salaries…………………..   5,000………. 1,500……………..500…………….3,000

Maintenance………………………………3,000………..1,500………………600………………900

Administrative expenses……………. 10,000………..3,000……………..2,000…………..5,000

Total fixed expenses…………………… 33,000……….13,500……………5,800………….13,700

Net operating income…………………… $7,000……….$6,500………….$4,200…………($3,700)

The additional information below is available.

ο The factory rent of $1,500 assigned to Product C is avoidable if the product is dropped.

ο The company’s total depreciation would not be affected by dropping Product C.

ο Eliminating Product C will reduce the total monthly utility bill from $4,000 to $3,000.

ο All supervisory salaries for Product C would be avoidable.

ο If Product C is discontinued, the maintenance department will be able to reduce total monthly expenses from $3,000 to $2,200.

ο Elimination of Product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,500.

Here’s the SOLUTION

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