Big Pool Company Net Operating Income Paper Question : The Large Pool Dept.s is losing money. Should they drop it? Show the effect on the bottom line if th

Big Pool Company Net Operating Income Paper Question : The Large Pool Dept.s is losing money. Should they drop it? Show the effect on the bottom line if they do so. Problem 1: Add / Drop
The Big Pool Company makes swimming pools in three sizes – small, medium and large. Data on sales and expenses for the quarter are:
Total
Small
Medium
Large
Sales
$ 300,000 $ 90,000 $ 150,000 $
60,000
Variable manufacturing and selling expenses
120,000
27,000
60,000
33,000
Contribution margin
180,000
63,000
90,000
27,000
Fixed expenses:
Advertising, traceable
30,000
10,000
14,000
6,000
Depreciation of special equipment
23,000
6,000
9,000
8,000
Salaries of product-line managers
35,000
12,000
13,000
10,000
Allocated common fixed expenses*
60,000
18,000
30,000
12,000
Total fixed expenses
148,000
46,000
66,000
36,000
Net operating income (loss)
$
32,000 $ 17,000 $
24,000 $
(9,000)
*Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the large pools and wants a recommendation as to whether or not the line should be
discontinued. The special equipment used to produce large pools has no resale value and does not wear out.
Problem 1: Add / Drop
The Big Pool Company makes swimming pools in three sizes – small, medium and large. Data on sales and expenses for the quarter are:
Total
Small
Medium
Large
Sales
$ 300,000 $ 90,000 $ 150,000 $
60,000
Variable manufacturing and selling expenses
120,000
27,000
60,000
33,000
Contribution margin
180,000
63,000
90,000
27,000
Fixed expenses:
Advertising, traceable
30,000
10,000
14,000
6,000
Depreciation of special equipment
23,000
6,000
9,000
8,000
Salaries of product-line managers
35,000
12,000
13,000
10,000
Allocated common fixed expenses*
60,000
18,000
30,000
12,000
Total fixed expenses
148,000
46,000
66,000
36,000
Net operating income (loss)
$
32,000 $ 17,000 $
24,000 $
(9,000)
*Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the large pools and wants a recommendation as to whether or not the line should be
discontinued. The special equipment used to produce large pools has no resale value and does not wear out.

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