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C Williams Products Inc
C Williams Products Inc. manufactures and sells a number of items, including school knapsacks. The company has been experiencing losses on the knapsacks for some time, as shown by the contribution format income statement below. $280,000 WILLIAMS PRODUCTS INC. Income Statement-School knapsacks For the Quarter Ended June 30 Sales Variable expenses: Variable manufacturing expenses Sales commissions Shipping $78,400 30,800 8,400 Total variable expenses 117,600 162,400 Contribution margin Fixed expenses! Salary of product-line manager General factory overhead Depreciation of equipment (no resale value) Advertising-traceable Insurance on inventories Purchasing department 10,750 55,750 21,000 53,250 4.600 32,6807 178,030 Total fixed expenses $(15,630) Operating loss *Allocated on the basis of machine-hours
Uperating 1833 $(15,630) "Allocated on the basis of machine-hours. Allocated on the basis of sales dollars. Discontinuing the knapsacks would not affect sales of other product lines and would have no noticeable effect on the company's total general factory overhead or total purchasing department expenses. Required: a. Compute the increase or decrease of net operating income if the Williams Products Inc line is continued or discontinued. (Input all he in
Expert Solution
| keep overnight cases | drop overnight cases | Net operating income | |
| sales | 280,000 | 0 | -280,000 |
| Variable expenses: | |||
| Variable manufacturing expenses | 78,400 | 0 | 78,400 |
| Sales commissions | 30,800 | 0 | 30,800 |
| shipping | 8,400 | 0 | 8,400 |
| Total variable expenses | 117,600 | 0 | 117,600 |
| contribution margin | 162,400 | 0 | -162,400 |
| Fixed expenses: | |||
| Salary of product-line manager | 10,750 | 0 | 10,750 |
| General factory overhead | 55,750 | 55,750 | 0 |
| Depreciation of equipment | 21,000 | 21,000 | 0 |
| Advertising-traceable | 53,250 | 0 | 53,250 |
| Insurance on inventories | 4,600 | 0 | 4,600 |
| Purchasing department | 32,680 | 32,680 | 0 |
| Total fixed expenses | 178,030 | 0 | 68,600 |
| Net operating Income (loss) | -15,630 | -109,430 | -93,800 |
The company should not discontinue the manufacture and sale of knapsacks as it will increase the loss of the company.
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