Reference no: EM131799121

Question - 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:

Thalassic Kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31
Sales		€490,000
Variable expenses:
Variable manufacturing expenses	€131,000
Sales commissions	46,000
Shipping	14,000
Total variable expenses		191,000
Contribution margin		299,000
Fixed expenses:
Advertising	118,000
Depreciation of equipment (no resale value)	47,000
General factory overhead	110,000*
Salary of product-line manager	20,000
Insurance on inventories	12,000
Purchasing department	49,000†
Total fixed expenses		356,000
Net operating loss		€(57000)

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

†Common costs allocated on the basis of sales euros.

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:

(a) Compute the increase or decrease of net operating income if the bilge pump product line are continued or discontinued.

(b) Would you recommend that the bilge pump product line be discontinued?