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 product line follows: Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31 Sales $ 430,000 Variable expenses: Variable manufacturing expenses $ 123,000 Sales commissions 46,000 Shipping 22,000 Total variable expenses 191,000 Contribution margin 239,000 Fixed expenses: Advertising (for the bilge pump product line) 20,000 Depreciation of equipment (no resale value) 117,000 General factory overhead 48,000 * Salary of product-line manager 125,000 Insurance on inventories 10,000 Purchasing department 54,000 † Total fixed expenses 374,000 Net operating loss $ (135,000 ) *Common costs allocated on the basis of machine-hours. †Common costs allocated on the basis of sales dollars. Discontinuing the bilge pump product line 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 product line?

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 16E

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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 product line follows:

Thalassines Kataskeves, S.A. Income Statement—Bilge Pump For the Quarter Ended March 31
Sales				$	430,000
Variable expenses:
Variable manufacturing expenses	$	123,000
Sales commissions		46,000
Shipping		22,000
Total variable expenses					191,000
Contribution margin					239,000
Fixed expenses:
Advertising (for the bilge pump product line)		20,000
Depreciation of equipment (no resale value)		117,000
General factory overhead		48,000	^*
Salary of product-line manager		125,000
Insurance on inventories		10,000
Purchasing department		54,000	^†
Total fixed expenses					374,000
Net operating loss				$	(135,000	)

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

†Common costs allocated on the basis of sales dollars.

Discontinuing the bilge pump product line 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 product line?

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