The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1. Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next year, but the firm’s cost structure will remain the same. T-1 T-2 Sales $ 245,000 $ 296,000 Variable costs: Cost of goods sold 79,000 148,000 Selling & administrative 19,000 59,000 Contribution margin $ 147,000 $ 89,000 Fixed expenses: Fixed corporate costs 69,000 84,000 Fixed selling and administrative 21,000 30,000 Total fixed expenses $ 90,000 $ 114,000 Operating income $ 57,000 $ (25,000 ) Required: 1. Find the expected change in annual operating income by dropping T-2 and selling only T-1. 2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $53,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) 1. 2. Required % increase in sales of T-1 % 3. Required % increase in sales from T-1 %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 12P

See similar textbooks

Related questions

Question

2. The sales for T-2 are decreasing and the purchase costs are increasing. The firm might drop T-2 and sell only T-1.

Barbour allocates fixed costs to products on the basis of sales revenue. When the president of Barbour saw the income statements (see below), he agreed that T-2 should be dropped. If T-2 is dropped, sales of T-1 are expected to increase by 10% next year, but the firm’s cost structure will remain the same.

	T-1	T-2
Sales	$	245,000	$	296,000
Variable costs:
Cost of goods sold		79,000		148,000
Selling & administrative		19,000		59,000
Contribution margin	$	147,000	$	89,000
Fixed expenses:
Fixed corporate costs		69,000		84,000
Fixed selling and administrative		21,000		30,000
Total fixed expenses	$	90,000	$	114,000
Operating income	$	57,000	$	(25,000	)

Required:

1. Find the expected change in annual operating income by dropping T-2 and selling only T-1.

2. By what percentage would sales from T-1 have to increase in order to make up the financial loss from dropping T-2? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)

3. What is the required percentage increase in sales from T-1 to compensate for lost margin from T-2, if total fixed costs can be reduced by $53,000? (Enter your answer as a percentage rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).)


1.
2.	Required % increase in sales of T-1	%
3.	Required % increase in sales from T-1	%

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 5 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions