Question

Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line follows: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 500,000 Variable expenses: Variable manufacturing expenses $ 126,000 Sales commissions 48,000 Shipping 14,000 Total variable expenses 188,000 Contribution margin 312,000 Fixed expenses: Advertising (for the bilge pump product line) 26,000 Depreciation of equipment (no resale value) 105,000 General factory overhead 48,000 * Salary of product-line manager 128,000 Insurance on inventories 7,000 Purchasing department 48,000 † Total fixed expenses 362,000 Net operating loss $ (50,000 ) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump product line? I NEED IT ASAP

Answer 1

	Keep product line	drop product line	difference net operating income increase / (decrease)
Sales	500,000	0	(500000)
Variable expenses:
Variable manufacturing expenses	126,000	0	126000
Sales commissions	48,000	0	48000
Shipping	14,000	0	14000
Total variable expenses	188,000	0	188000
Contribution margin	312,000	0	(312000)
Fixed expenses:
Advertising	26,000	0	26000
Depreciation of equipment	105,000	105000	0
General factory overhead	48,000	48000	0
Salary of product-line manager	128,000	0	128000
Insurance on inventories	7,000	0	7000
Purchasing department	48,000	48000	0
Total fixed expenses	362,000	201000	161000
Net operating income	(50,000)	(201000)	(151000)

The financial advantage (disadvantage) of discontinuing the bilge pump product line is (201000)