When Mr. Ree Active, president and chief executive of Precious Products Inc., first saw the segmented income statement below, he flew into his usual rage: “When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!” Product Lines Total U V W Sales $250,000 $100,000 $75,000 $75,000 Variable expenses 119,000 37,000 35,000 47,000 Contribution margin 131,000 63,000 40,000 28,000 Traceable fixed expenses* 98,000 31,000 37,000 30,000 Common expenses, allocated 32,900 18,000 10,500 4,400 Operating income (loss) $100 $14,000 -$7,500 -$6,400 *These traceable expenses could be eliminated if the product lines to which they are traced were discontinued. Calculate: Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer.
When Mr. Ree Active, president and chief executive of Precious Products Inc., first saw the segmented income statement below, he flew into his usual rage: “When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!” Product Lines Total U V W Sales $250,000 $100,000 $75,000 $75,000 Variable expenses 119,000 37,000 35,000 47,000 Contribution margin 131,000 63,000 40,000 28,000 Traceable fixed expenses* 98,000 31,000 37,000 30,000 Common expenses, allocated 32,900 18,000 10,500 4,400 Operating income (loss) $100 $14,000 -$7,500 -$6,400 *These traceable expenses could be eliminated if the product lines to which they are traced were discontinued. Calculate: Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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When Mr. Ree Active, president and chief executive of Precious Products Inc., first saw the segmented income statement below, he flew into his usual rage: “When will we ever start showing a real profit? I'm starting immediate steps to eliminate those two unprofitable lines!”
| Product Lines | ||||
| Total | U | V | W | |
| Sales | $250,000 | $100,000 | $75,000 | $75,000 |
| Variable expenses | 119,000 | 37,000 | 35,000 | 47,000 |
| Contribution margin | 131,000 | 63,000 | 40,000 | 28,000 |
| Traceable fixed expenses* | 98,000 | 31,000 | 37,000 | 30,000 |
| Common expenses, allocated | 32,900 | 18,000 | 10,500 | 4,400 |
| Operating income (loss) | $100 | $14,000 | -$7,500 | -$6,400 |
*These traceable expenses could be eliminated if the product lines to which they are traced were discontinued.
Calculate:
- Recommend which segments, if any, should be eliminated. Prepare a report in good form to support your answer.
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