Problem 1: The Winter Products Division of American Sports Corporation produces and markets two products for use in the snow: Sleds and Saucers. The following data were gathered on activities last month:
|
|
Sleds
|
Saucers
|
|
Sales in units...........................................................
|
2,000
|
9,000
|
|
Selling price per unit.............................................
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$50
|
$20
|
|
Variable production costs per unit......................
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$20
|
$5
|
|
Traceable fixed production costs........................
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$12,000
|
$33,000
|
|
Variable selling expenses per unit......................
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$2
|
$1
|
|
Traceable fixed selling expenses.........................
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$2,000
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$3,000
|
|
Allocated division administrative expenses......
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$40,000
|
$72,000
|
Prepare a segmented income statement in the contribution format for last month.
Problem 2: The management of Drummer Corporation is considering dropping product D84L. Data from the company's accounting system appear below:
Sales...................................................... $800,000
Variable expenses................................... $440,000
Fixed manufacturing expenses................... $248,000
Fixed selling and administrative expenses.. $184,000
All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $201,000 of the fixed manufacturing expenses and $156,000 of the fixed selling and administrative expenses are avoidable if product D84L is discontinued.
What would be the effect on the company's overall net operating income if product D84L were dropped? Should the product be dropped?