Annual Costs of Operating Each Product Line Sales in units Sales in dollars Unit-level costs: Cost of production Sales commissions Shipping and handling Miscellaneous Total unit-level costs Product-level costs: Supervisors' salaries Facility-level costs: Rent Utilities Depreciation on equipment Allocated companywide expenses Total facility-level costs Product-Line Earnings Statements (Dollar amounts are in thousands) Total product cost Profit on products Anagen 450,000 $900,000 85,500 11,700 20,250 6,750 124,200 9,600 100,000 112,500 400,000 22,500 635,000 768,800 $131,200 Catagen 450,000 $900,000 85,500 11,700 18,000 4,500 119,700 7,200 100,000 112,500 400,000 22,500 635,000 761,900 $138,100 Luster 225,000 $450,000 46,200 6,000 9,000 2,250 63,450 2,400 50,000 56,250 200,000 11,250 317,500 383,350 $ 66,650 Total 1,125,000 $2,250,000 217,200 29,400 47,250 13,500 307,350 19,200 250,000 281,250 1,000,000 56,250 1,587,500 1,914,050 $ 335,950 Prepare revised product-line earnings statements based on the elimination of Luster. (Hint: It will be necessary to calculate some per-unit data to accomplish this.) ATC 6-1 Business Applications Case Analyzing inventory reductions at Procter & Gamble As discussed in the Curious Accountant in Chapter 3, Procter & Gamble (P&G) believed it could increase the company's profits by eliminating some product-lines. Other companies have also tried to improve their financial performance by downsizing. In November 2017, General Electric announced it would begin a downsizing operation that would result in their exiting businesses using over $20 billion in assets in the next one to two years. In January 2018, Newell Brands, the company whose products include Tupperware, Sharpie pens, Elmer's Glue, and Rawlings sports products, announced it would be reducing its product offerings to the extent that it would close half of its facilities and reduce its revenues by 20 percent. Required Page 301 a. Identify some costs savings these companies might realize by reducing the number of items they sell or use in production. Be as specific as possible, and use your imagination. b. Consider the additional information presented as follows, which is hypothetical. All dollar amounts are in thousands, unit amounts are not. Assume that P&G decides to eliminate one shampoo product-line, Luster, for one of its segments that currently produces three products. As a result, the following are expected to occur: 1. The number of units sold for the segment is expected to drop by only 125,000 because of the elimination of Luster, since most customers are expected to purchase a Anagen or Catagen product instead. The shift of sales from Luster to Anagen and Catagen is expected to be evenly split. In other words, the sales of Anagen and Catagen will each increase by 50,000 units. 2. Rent is paid for the entire production facility, and the space used by Luster cannot be sublet. 3. Utilities costs are expected to be reduced by $40,000. 4. All of the supervisors for Luster were all terminated. No new supervisors will be hired for Anagen or Catagen. 5. Half of the equipment being used to produce Luster is also used to produce the other two products and its depreciation cost must be absorbed by them. The remaining equipment has a remaining a book-value of $340,000 and can be sold for only $60,000. 6. Facility-level costs will continue to be allocated between the product lines based on the number of units produced. Annual Costs of Operating Each Product Line Sales in units Sales in dollars Unit-level costs: Cost of production Sales commissions Shipping and handling Miscellaneous Total unit-level costs Product-level costs: Supervisors' salaries Facility-level costs: Rent Utilities Product-Line Earnings Statements (Dollar amounts are in thousands) Depreciation on equipment Allocated companywide expenses Total facility-level costs Total product cost Profit on products Anagen 450,000 $900,000 85,500 11,700 20,250 6,750 124,200 9,600 100,000 112,500 400,000 22,500 635,000 768,800 $131,200 Catagen 450,000 $900,000 85,500 11,700 18,000 4,500 119,700 7,200 100,000 112,500 400,000 22,500 635,000 761,900 $138,100 Luster 225,000 $450,000 46,200 6,000 9,000 2,250 63,450 2,400 50,000 56,250 200,000 11,250 317,500 383,350 $66,650 Total 1,125,000 $2,250,000 217,200 29,400 47,250 13,500 307,350 19,200 250,000 281,250 1,000,000 56,250 1,587,500 1,914,050 $ 335,950 Prepare revised product-line earnings statements based on the elimination of Luster. (Hint: It will be necessary to calculate some per-unit data to accomplish this.) ATC 6-2 Group Assignment Relevance and cost behavior