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Control One

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P20-29B Making dropping a product and product-mix decisions [20–25 min]
Members of the board of directors of Control One have received the following operating
income data for the year ended March 31, 2012:

Members of the board are surprised that the industrial systems product line is losing
money. They commission a study to determine whether the company should drop the
line. Company accountants estimate that dropping industrial systems will decrease
fixed cost of goods sold by $82,000 and decrease fixed marketing and administrative
expenses by $15,000.

1. Prepare an incremental analysis to show whether Control One should drop the
industrial systems product line.
2. Prepare contribution margin income statements to show Control One’s total
operating income under the two alternatives: (a) with the industrial systems line
and (b) without the line. Compare the difference between the two alternatives’
income numbers to your answer to Requirement 1.
3. What have you learned from this comparison in Requirement 2?

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