Question

Blaine Avenue Company manufactures three products. Profit computations for these three products for Year 1 are given below.

  

                                                          Product X            Product Y            Product Z

Sales                                                  $300,000             $700,000             $800,000

Direct materials                                 (70,000)             (150,000)             (200,000)

Direct labor                                        (50,000)             (200,000)             (250,000)

Manufacturing Overhead               (100,000)             (400,000)             (500,000)

Profit                                                   $80,000             ($50,000)           ($150,000)

  

Blaine Avenue has a total of $1,000,000 in manufacturing overhead costs. Of this amount, $700,000 is directly related to the number of product batches produced during the year. The number of batches of the three products for Year 1 was as follows: Product X, 20 batches; Product Y, 30 batches; Product Z 50 batches. The remaining $300,000 in overhead is for facility support (property taxes, security costs, general administration, etc.) and doesn’t not vary at all with the level of activity. What would total company NET INCOME be if the Product Y line were dropped? Assume that Blaine Avenue has no other costs or expenses except those described here.

• loss of $270,000

• profit of $30,000

• loss of $120,000

• $0 – no profit or loss

• profit of $180,000

• loss of $260,000

• profit of $40,000

• profit of $300,000

Answer 1