Solve complete questions Problem 9-2 Deciding Whether to Add or Drop a Product (LO1-CC3) (Algo)Pam LaRose is the chief executive of Sturdy Furniture Inc. (SFI), which makes top-quality office furniture. LaRose would like adviceconcerning the advisability of eliminating the model A1 table. This table has been among the company's best-selling products, but itseems unprofitable.A condensed statement of operating income for the company and for the model A1 table for the quarter ended September 30 follows:Model A1tableAllProductsSalesCost of sales:$1,300,000* $5,900,000Direct materials520,0001,534,000Direct labour312,0001,357,000Fringe benefits (20% of direct labour)Variable manufacturing overhead62,400271,40015,60059,000Building rent and maintenance16,90059,000DepreciationTotal cost of salesGross marginSelling and administrative expenses:Product managers' salariesSales commissions (5% of sales)Fringe benefits (20% of salaries and commissions)ShippingGeneral administrative expensesTotal selling and administrative expenses83,200147,5001,010,1003,427,900289,9002,472,10042,900147,50065,000295,00021,58088,50020,000236,000208,000944,000357,4801,711,000Net operating income (loss)R(67,580) R 761,100The following additional data have been supplied by the company:a. Direct labour is a variable cost at SFI.b. All of the company's products are manufactured in the same facility and use the same equipment. Building rent, maintenance anddepreciation are allocated to products using various bases. The equipment does not wear out through use; it eventually becomesobsolete.c. There is ample capacity to fill all orders.d. Dropping the model A1 table would have no effect on sales of other product lines.e. Inventories of work in process or finished goods are insignificant.f. Shipping costs are traced directly to products.g. General administrative expenses are allocated to products on the basis of sales dollars. There would be no effect on the totalgeneral administrative expenses if the model A1 table was dropped.h. If the model A1 table was dropped, the product manager would be laid off.Required:a-1. At current level of sales, compute the effect of net operating income if the Model A1 table is dropped.in net operating income by$1-b. Would you recommend that the model A1 table be dropped?Yes○ No2. What would sales of the model A1 table have to be, at minimum, in order to justify retaining the product? (Hint. Set this up as abreak-even problem, but include only the relevant costs from Requirement (1).) (Round "Contribution margin ratio" to 2 decimalplaces and final answer to the nearest whole number.)Sales volume$

Contribution margin is determined after subtracting the variable costs (like materials, labor) from…

Required: a-1. At current level of sales, compute the effect of net operating income if the Model A1 table is dropped. in net operating income by $ 1-b. Would you recommend that the model A1 table be dropped? Yes O No 2. What would sales of the model A1 table have to be, at minimum, in order to justify retaining the product? (Hint. Set this up as a break-even problem, but include only the relevant costs from Requirement (1).) (Round "Contribution margin ratio" to 2 decimal places and final answer to the nearest whole number.) Sales volume $

Required: a-1. At current level of sales, compute the effect of net operating income if the Model A1 table is dropped. in net operating income by $ 1-b. Would you recommend that the model A1 table be dropped? Yes O No 2. What would sales of the model A1 table have to be, at minimum, in order to justify retaining the product? (Hint. Set this up as a break-even problem, but include only the relevant costs from Requirement (1).) (Round "Contribution margin ratio" to 2 decimal places and final answer to the nearest whole number.) Sales volume $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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