Question

Gator Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $501,000, variable expenses of $367,000, and fixed expenses of $149,000. Therefore, the gloves and mittens line had a net loss of $15,000. If Gator eliminates the line, $38,000 of fixed costs will remain. Prepare an analysis showing whether the company should eliminate the gloves and mittens line. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Continue to Eliminate Net Income Increase (Decrease) Sales $ $ $ Variable costs Contribution margin Fixed costs Net income / (Loss) $ $ $ The analysis indicates that Gator should the gloves and mitten s line.

Answer 1

Ans:

Following table shows the analysis

	Continue	Eliminate	Net Income
Sales	501,000	0	-501,000
Variable costs	-367,000	0	367,000
Contribution margin	134,000	0	-134,000
Fixed costs	-149,000	-38,000	111,000
Net Income	-15000	-38000	-23000

Clearly if the gloves and mittens line is eliminated net losses with increase to 38,000 which shown an increase in losses by 23,000. Therefore, this line should not be eliminated.

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