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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 CasesFor the Quarter Ended June 30 | ||
| Sales | 4 | 50,000 |
| Variable expenses: | ||
| Variable manufacturing expenses | 130,000 | |
| Sales commissions | 48,000 | |
| Shipping | 12,000 | |
| Total variable expenses | 190,000 | |
| Contribution margin | 260,000 | |
| Fixed expenses: | ||
| Salary of product-line manager | 21,000 | |
| General factory overhead | 104,000 | |
| Depreciation of equipment (no resale value) | 36,000 | |
| Advertising—traceable | 110,000 | |
| Insurance on inventories | 9,000 | |
| Purchasing department | ||
| Total fixed expenses | 330,000 | |
| Net operating loss | (70,000 |
| *Allocated on the basis of machine-hours. |
| †Allocated on the basis of sales dollars. |
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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 |
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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.) b.Would you recommend that the company discontinue the manufacture and sale of overnight cases? |
