Question

XYZ has been experiencing losses on its Widget line for several years. Here is the most recent contribution margin statement:

Sales		850,000
VC:
Variable Manufacturing	330,000
Sales Commissions	42,000
Shipping	18,000
Total VC		390,000
Contribution Margin		460,000
FC:
Advertising (traceable)	270,000
Depreciation (no resale)	80,000
General Factory OH	105,000
Product Manger Salary	32,000
Insurance on Inventory	8,000
Purchasing Department	45,000
Total FC		540,000
Net Op Loss		(80,000)

The general factory overhead is a common cost allocated on the basis of machine hours

The Purchasing department is a common cost allocated on the basis of sales dollars.

What is the total relevant costs in the decision to drop this line?

Answer 1