Question - Walker Company produces blenders and coffeemakers. During the past year, the company produced and sold 100,000 blenders and 25,000 coffeemakers. Fixed costs for Walker totalled $250,000, of which $90,000 can be avoided if the blenders are not produced and $45,000 can be avoided if the coffee makers are not produced. Revenue and variable cost information follow:
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Blenders
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Coffeemakers
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Variable expenses per appliance
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$20
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$43
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Selling price per appliance
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22
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45
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Required:
Prepare segmented income statements. Separate direct and common fixed costs.
What would the effect be on Walker's profit if the coffeemaker line is dropped? The blender line?
What would the effect be on firm profits if an additional 10,000 blenders could be produced (using existing capacity) and sold for $20.50 on a special-order basis? Existing sales would be unaffected by the special order.