The following information is available for Titan Based on this information, the management is considering eliminating product line C. They assumed that by operating only product lines A and B, they would have higher profits. It was also determined that if product line C is discontinued, 80% of the fixed overhead can be avoided, and 70% of the fixed selling and administrative expenses can also be avoided. Product A Product B Product C Sales P100,000 P300,000 P200,000 Cost of Goods Sold Direct Materials 25,000 75,000 80,000 Labor 20,000 40,000 50,000 Variable Overhead 10,000 20,000 15,000 Fixed Overhead 5,000 15,000 35,000 Total 60,000 150,000 180,000 Gross Profit 40,000 150,000 20,000 Selling and Administrative Variable 12,000 30,000 10,000 Product A Product B Product C Fixed 8,000 40,000 30,000 Total 20,000 70,000 40,000 Net Income (Loss) P20,000 80,000 (20,000) Based on the above data, should product line C be continued or eliminated? Justify your answer.

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

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 20BEA

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The following information is available for Titan Based on this information, the management is considering eliminating product line C. They assumed that by operating only product lines A and B, they would have higher profits. It was also determined that if product line C is discontinued, 80% of the fixed overhead can be avoided, and 70% of the fixed selling and administrative expenses can also be avoided.

	Product A	Product B	Product C
Sales	P100,000	P300,000	P200,000
Cost of Goods Sold
Direct Materials	25,000	75,000	80,000
Labor	20,000	40,000	50,000
Variable Overhead	10,000	20,000	15,000
Fixed Overhead	5,000	15,000	35,000
Total	60,000	150,000	180,000
Gross Profit	40,000	150,000	20,000
Selling and Administrative
Variable	12,000	30,000	10,000

	Product A	Product B	Product C
Fixed	8,000	40,000	30,000
Total	20,000	70,000	40,000
Net Income (Loss)	P20,000	80,000	(20,000)

Based on the above data, should product line C be continued or eliminated? Justify your answer.

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