Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump follows: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 420,000 Variable expenses: Variable manufacturing expenses $ 122,000 Sales commissions 53,000 Shipping 12,000 Total variable expenses 187,000 Contribution margin 233,000 Fixed expenses: Advertising (for the bilge pump product line) 27,000 Depreciation of equipment (no resale value) 111,000 General factory overhead 48,000* Salary of product-line manager 122,000 Insurance on inventories 14,000 Purchasing department 43,000† Total fixed expenses 365,000 Net operating loss $ (132,000) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses. Required: What is the financial advantage (disadvantage) of discontinuing the bilge pump?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter2: Basic Managerial Accounting Concepts

Section: Chapter Questions

Problem 26BEA

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Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump follows:

Thalassines Kataskeves, S.A.
Income Statement—Bilge Pump
For the Quarter Ended March 31
Sales		$ 420,000
Variable expenses:
Variable manufacturing expenses	$ 122,000
Sales commissions	53,000
Shipping	12,000
Total variable expenses		187,000
Contribution margin		233,000
Fixed expenses:
Advertising (for the bilge pump product line)	27,000
Depreciation of equipment (no resale value)	111,000
General factory overhead	48,000^*
Salary of product-line manager	122,000
Insurance on inventories	14,000
Purchasing department	43,000^†
Total fixed expenses		365,000
Net operating loss		$ (132,000)

*Common costs allocated on the basis of machine-hours.

†Common costs allocated on the basis of sales dollars.

Discontinuing the bilge pump would not affect sales of other product lines and would have no effect on the company’s total general factory overhead or total Purchasing Department expenses.

Required:

What is the financial advantage (disadvantage) of discontinuing the bilge pump?

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