In: Accounting
Marinette Company makes several products, including canoes. The company has been experiencing losses from its canoe segment and is considering dropping that product line. The following information is available regarding its canoe segment. |
MARINETTE COMPANY Income Statement—Canoe Segment |
||||
Sales | $ | 2,000,000 | ||
Variable costs | ||||
Direct materials | $ | 450,000 | ||
Direct labor | 500,000 | |||
Variable overhead | 300,000 | |||
Variable selling and administrative | 200,000 | |||
Total variable costs | 1,450,000 | |||
Contribution margin | 550,000 | |||
Fixed costs | ||||
Direct | 375,000 | |||
Indirect | 300,000 | |||
Total fixed costs | 675,000 | |||
Net income | $ | (125,000) | ||
1. |
If canoes are discontinued, calculate the net income lost or gained. |
Answer:-
Sales |
Total |
Avoidable Expenses |
Unavoidable Expenses |
Sales |
$2,000,000 |
$2,000,000 |
|
Direct materials |
$450,000 |
$450,000 |
|
Direct labor |
$500,000 |
$500,000 |
|
Variable overhead |
$300,000 |
$300,000 |
|
Variable selling and administrative |
$200,000 |
$200,000 |
|
Total variable costs |
$1,450,000 |
||
Contribution margin |
$550,000 |
||
Fixed costs |
|||
Direct |
$375,000 |
||
Indirect |
$300,000 |
||
Total |
$175,000 |
$300,000 |
In Case, the net result if the canoe segment is eliminated is reducing the company income by $175,000 and they still have unavoidable expenses of $300,000. Therefore, they should not discontinue the canoe segment