Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision: E (Click the icon to view the analysis.) Assume that Movie Street can avoid $39,000 of fixed costs by dropping the DVD product line (these costs are direct fixed costs of the DVD product line). Prepare a differential analysis to show whether Movie Street should stop selling DVDS. (Enter decreases to revenues with a parentheses or minus sign.) Expected decrease in revenues Data Table Expected decrease in costs: Variable costs Fixed costs Movie Street Income Statement Expected decrease in total costs For the Year Ended December 31, 2018 Expected in operating income Total Blu-ray Discs DVD Discs Decision: Net Sales Revenue 424,000 $ 300,000 $ 124,000 248,000 153,000 95,000 Variable Costs Contribution Margin 176,000 147,000 29,000 Fixed Costs: Manufacturing 130,000 74,000 56,000 60,000 50,000 10,000 Selling and Administrative Total Fixed Expenses 190,000 124,000 66,000 $ (14,000) $ 23,000 $ (37,000) Operating Income (Loss)

Top managers of Movie Street are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision: E (Click the icon to view the analysis.) Assume that Movie Street can avoid $39,000 of fixed costs by dropping the DVD product line (these costs are direct fixed costs of the DVD product line). Prepare a differential analysis to show whether Movie Street should stop selling DVDS. (Enter decreases to revenues with a parentheses or minus sign.) Expected decrease in revenues Data Table Expected decrease in costs: Variable costs Fixed costs Movie Street Income Statement Expected decrease in total costs For the Year Ended December 31, 2018 Expected in operating income Total Blu-ray Discs DVD Discs Decision: Net Sales Revenue 424,000 $ 300,000 $ 124,000 248,000 153,000 95,000 Variable Costs Contribution Margin 176,000 147,000 29,000 Fixed Costs: Manufacturing 130,000 74,000 56,000 60,000 50,000 10,000 Selling and Administrative Total Fixed Expenses 190,000 124,000 66,000 $ (14,000) $ 23,000 $ (37,000) Operating Income (Loss)

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 9PA: Hong Publishing has purchased Lang Publishing. After reviewing titles from both companies, a...

See similar textbooks

Similar questions

Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less than expected. Mandy Confer, owner of Bannister, was convinced that her firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. After a careful review of her firms condition, Mandy realized that the main obstacle for increasing revenues and reducing costs was the high defect rate of her products (a 6 percent reject rate). She was certain that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Mandy also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy: a. Improve the soldering capabilities by sending employees to an outside course. b. Redesign the insertion process to eliminate some of the common mistakes. c. Improve the procurement process by selecting suppliers that provide higher-quality circuit boards. Required: 1. State the revenue growth and cost reduction strategy using a series of cause-and-effect relationships expressed as if-then statements. 2. Illustrate the strategy using a strategy map. 3. Explain how the revenue growth strategy can be tested. In your explanation, discuss the role of lead and lag measures, targets, and double-loop feedback.
Hong Publishing has purchased Lang Publishing. After reviewing titles from both companies, a decision must be made to determine what titles must be dropped. The following information is available to make the decision. A. What Is the total income if all titles were produced? B. If Title X was dropped, what would be the effect on Net Income? C. How much did Title X Contribute to Fixed Costs? D. Determine the cost and the amount that will remain even it Title X is dropped? E. Which costs and amount will be eliminated if Title X is dropped?
Boxer Production, Inc., is in the process of considering a flexible manufacturing system that will help the company react more swiftly to customer needs. The controller, Mick Morrell, estimated that the system will have a 10-year life and a required return of 10% with a net present value of negative $500,000. Nevertheless, he acknowledges that he did not quantify the potential sales increases that might result from this improvement on the issue of on-time delivery, because it was too difficult to quantify. If there is a general agreement that qualitative factors may offer an additional net cash flow of $150,000 per year, how should Boxer proceed with this Investment?
Making decisions about dropping a product Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to help make this decision: Total fixed costs will not change if the company stops selling DVDs. Requirements Prepare a differential analysis to show Whether Video Avenue should drop the DVD Product fins. Will dropping DVDs add $37,000 to operating income? Explain.
Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to helo make this decision: Total fixed costs will not change if the company stops selling DVDs. Video Avenue Income Statment For the Year Ended December 31, 2018 Total Blue-ray DVE Discs Net Sale Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Cost Manufacturing 132,000 76,000 56,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income(Loss)…
Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the DVD product line. Company accountants have prepared the following analysis to helo make this decision: Total fixed costs will not change if the company stops selling DVDs. Video Avenue Income Statment For the Year Ended December 31, 2018 Total Blue-ray DVE Discs Net Sale Revenue $ 437,000 $ 308,000 $ 129,000 Variable Costs 250,000 154,000 96,000 Contribution Margin 187,000 154,000 33,000 Fixed Cost Manufacturing 132,000 76,000 56,000 Selling and Administrative 65,000 51,000 14,000 Total Fixed Expenses 197,000 127,000 70,000 Operating Income(Loss)…
Ram Co. is trying to decide whether or not to discontinue one of its products, slow cookers. Last year's sales and expenses for slow cookers are as follows: Sales $65,000 Less expenses: Variable costs $35,000 Fixed costs 48,000 83,000 Net operating loss $(18,000) If slow cookers are discontinued, 75% of the fixed costs can be avoided. At the same time, discontinuing slow cookers will have no effect on other products. What is the financial advantage or disadvantage of discontinuing slow cookers? Multiple Choice a)$17,000 financial advantage b)$13,000 financial disadvantage c)$4,000 financial disadvantage d)$6,000 financial advantage
Top managers of Vermont Flooring are alarmed by their operating losses. They are considering dropping the laminate flooring product line. Company accountants have prepared the following analysis to help make this decision in the chart below: Total fixed costs will not change if the company stops selling laminate flooring. Requirements 1. Prepare an incremental analysis to show whether Vermont Flooring should discontinue the laminate flooring product line. Will discontinuing laminate flooring add $28,000 to operating income? Explain. 2. Assume that the company can avoid $32,000 of fixed expenses by discontinuing the laminate flooring product line (these costs are direct fixed costs of the laminate flooring product line). Prepare an incremental analysis to show whether the company should stop selling laminate flooring. 3. Now, assume that all of the fixed costs assigned to laminate flooring are direct fixed costs and can be avoided if the company stops selling laminate flooring. However,…
Mallory’s Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further? a. $5 per unit profit b. $3 per unit loss c. $16 per unit profit d. $12 per unit loss
Peterson Corporation is considering implementing a JIT production system. The new system would reduce current average inventory levels of $2,000,000 by 75%, but it would require a much greater dependency on the company’s core suppliers for on-time deliveries and high-quality inputs. The company’s operations manager, John Leung, is opposed to the idea of a new JIT system. He is concerned that the new system (a) will be too costly to manage; (b) will result in too many stock outs; and (c) will lead to the layoff of his employees, several of whom are currently managing inventory. He believes that these layoffs will affect the morale of his entire production department. The management accountant, Susan Chow, is in favour of the new system, due to the likely result in cost savings. John wants Susan to revise her cost saving estimation because he is concerned that top management will give more weight to financial factors and not give due consideration to nonfinancial factors such as employee…
Galveston Pump Corporation is considering implementing a JIT production system. The new system would reduce current average inventory levels of $2,000,000 by 75%, but it would require a much greater dependency on the company’s core suppliers for on-time deliveries and high-quality inputs. The company’s operations manager, Frank Griswold, is opposed to the idea of a new JIT system because he is concerned that the new system (a) will be too costly to manage; (b) will result in too many stockouts; and (c) will lead to the layoff of his employees, several of whom are currently managing inventory. He believes that these layoffs will affect the morale of his entire production department. The management accountant, Bonnie Barrett, is in favor of the new system because of its likely cost savings. Frank wants Bonnie to rework the numbers because he is concerned that top management will give more weight to financial factors and not give due consideration to nonfinancial factors such as employee…
Galveston Pump Corporation is considering implementing a JIT production system. The new system would reduce current average inventory levels of $2,000,000 by 75%, but it would require a much greater dependency on the company’s core suppliers for on-time deliveries and high-quality inputs. The company’s operations manager, Frank Griswold, is opposed to the idea of a new JIT system because he is concerned that the new system (a) will be too costly to manage; (b) will result in too many stockouts; and (c) will lead to the layoff of his employees, several of whom are currently managing inventory. He believes that these layoffs will affect the morale of his entire production department. The management accountant, Bonnie Barrett, is in favor of the new system because of its likely cost savings. Frank wants Bonnie to rework the numbers because he is concerned that top management will give more weight to financial factors and not give due consideration to nonfinancial factors such as employee…