Question

16. Sheridan Company spent $11600 to produce Product 89, which can be sold as is for $14500, or processed further incurring additional costs of $4350 and then be sold for $20300. Which amounts are relevant to the decision about Product 89?

a) $11600, $14500, and $4350

b) $14500, $4350, and $20300

c) $11600, $14500, $4350 and $20300

d) $11600, $14500, and $20300

20. A company has three product lines, one of which reflects the following results:

Sales	$202000
Variable expenses	113000
Contribution margin	89000
Fixed expenses	130000
Net loss	$ (41000)

If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company’s net income will

a) decrease by $11000.

b) increase by $41000.

c) increase by $11000.

d) decrease by $89000.

Answer 1

Answer:
1)
Particulars	Amount (in $ )
Sales revenue after further processing	$ 20,300
Less: Sales revenue as is	($ 14,500)
Incremental Sales revenue	$ 5,800
Less: Additional costs	($ 4,350)
Incremental Profit and loss	$ 1,450
From above we Can Conclude that,
Sales revenue after further processing, Sales revenue as is, Additional costs are relevant to the decision about Product 89. So the Following amounts are $ $ 14,500, $ 4,350 and $ 20,300
Option (b) is Correct
2)
Particulars	Amount (in $ )
Lost Contribution Margin	($ 89,000)
Fixed expenses Eliminated                 ( $ 130,000 x 60% )	$ 78,000
Change in Net income	($ 11,000)
Option (a) is Correct decrease by $11,000