Question

23. Crane Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows:

	Wood		Aluminum		Hard Rubber		Total
Sales	$540000		$230000		$65000		$835000
Variable expenses	340000		170000		58000		568000
Contribution margin	200000		60000		7000		267000
Fixed expenses	75000		35000		22000		132000
Net income (loss)	$125000		$ 25000		$(15000)		$135000

Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped?

a) $128000

b) $90000

c) $150000

d) $170000

24. Marigold Corp. is contemplating the production and sale of a new widget. Projected sales are $480000 (or 80000 units) and desired profit is $32000. What is the target cost per unit?

a) $5.60

b) $6.00

c) $6.40

d) $4.00

Answer 1

23. Total net income if the hard rubber line is dropped
Since none of the fixed costs of the hard rubber line are avoidable, these will continue to be incurred.
Calculation of the total net income:
Particulars	Amount
Net income - Wood	$1,25,000
Net income - Aluminiun	$25,000
Less: Fixed cost - Hard rubber line	$22,000
Total net income	$1,28,000
Hence, option a is the correct answer.
24. Target cost per unit
= Total target cost / Total number of units
= $448,000 / 80,000 units = $5.60 per unit
* Target cost = Projected sales - Desired profit
=> Target cost = $480,000 - $32,000 = $448,000
Hence, option a is the correct answer.