Question

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 Statement—Overnight Cases For the Quarter Ended June 30
Sales				$	430,000
Variable expenses:
Variable manufacturing expenses	$	138,000
Sales commissions		50,000
Shipping		23,000
Total variable expenses					211,000
Contribution margin					219,000
Fixed expenses:
Salary of product-line manager		29,000
General factory overhead		112,000	*
Depreciation of equipment (no resale value)		35,000
Advertising—traceable		125,000
Insurance on inventories		11,000
Purchasing department		52,000	†
Total fixed expenses					364,000
Net operating loss				$	(145,000	)

*Allocated on the basis of machine-hours.

†Allocated on the basis of sales dollars.

Discontinuing the overnight cases would not affect the company’s 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.)

	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
Advertising—traceable
Insurance on inventories
Purchasing department
Total fixed expenses
Net operating Income (loss)	$	$	$

Answer 1

	Keep Overnight Cases	Drop Overnight Case	Net Operating Income
Sales	430000	0	-430000
Variable expenses:
Variable manufacturing expenses	138000	0	138000
Sales commissions	50000	0	50000
Shipping	23000	0	23000
Total variable expenses	211000	0	211000
Contribution margin	219000	0	-219000
Fixed expenses:
Salary of line manager	29000	0	29000
General factory overhead	112000	112000	0
Depreciation of equipment	35000	35000	0
Advertising—traceable	125000	0	125000
Insurance on inventories	11000	0	11000
Purchasing department	52000	52000	0
Total fixed expenses	364000	199000	165000
Net operating Income (loss)	-145000	-199000	-54000