Question

Adidas manufactures two products; the following contribution format income statement shows that product B is not performing well.

Required:

Conduct a scientific analysis to help Adidas management to decide whether to drop product B or to keep it:

Details	Total	Product G	Product B
Sales	430,000	320,000	110,000
Variable expenses	300,000	210,000	90,000
Contribution margin	160,000	110,000	20,000
Fixed expenses:
Rent	30,000	20,000	10,000
Depreciation	15,000	10,000	5,000
Maintenance	20,000	14,000	6,000
Supervisor salaries	48,000	28,000	20,000
manufacturing overhead	16,000	12,000	4,000
Net Income (loss)	1,000	26,000	(25,000)

Additional Information:

1. Rent is for one plant space where the two products are manufactured.
2. Special equipment of product B will be sold if the product dropped
3. Maintenance expense of product B will be reduced by 5,000
4. Supervisors salaries are avoidable
5. 3,000 of manufacturing overhead will be reallocated to product G

Conduct a scientific analysis to help Adidas management to decide whether to drop product B or to keep it.

Answer 1

Answer is given below