Problem: During the most recent accounting period faux line and the traditional line sold 15,000 and 2,000 units. Financial statements are shown below.
Sales faux Traditional
Less cost of goods sold $800,000 $200,000
Unit level production cost 500,000 120,000
Depreciation, production equipment 120,000 30,000
Gross margin 180,000 50,000
Less operating expenses
Unit level selling and admin costs 30,000 25,000
Corporate level facility expenses (fixed) 26,000 26,000
Net income (loss) 124,000 (1,000)
Based on this information, the company should??
a) Eliminate the traditional line because it operates at a loss
b) keep the traditional because it contributes 26,000 to total profit
c) keep the traditional because it contributes 55,000 to profit
d) keep the traditional because it contribute 50,000 to total profit
I'm also trying to decide which one of these contracts I should accept. The costs and revenues with each are listed below:
Contract A Contract B
Contact revenue 200,000 260,000
Materials 10,000 10,000
Labor 88,000 120,000
Depreciation on equipment 8,000 10,000
Cost incurred for consulting advice 1,500 1,500
Allocated portion of overhead 5,000 3,000
Not sure which amount is relevant for selecting one contract over another?
a) contract revenue and costs materials
b) materials, consulting advice and overhead
c) costs of consulting advice and overhead
d) contract revenue and labor costs