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How would advice janet bakery

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Reference no: EM132527609

Question 1:  Ames Company has three product lines, A, B, and C. The following information is available:

                                 A                      B                                C

Sales                      $60,000         $90,000               $24,000

Variable costs       36,000               48,000                  15,000

Contribution margin   24,000           $42,000                 $9,000

Fixed costs:

Avoidable                  9,000             18,000               6,000

Unavoidable               6,000             9,000                5,400

Operating income           $9,000        $15,000           $(2,400)

Ames Company is thinking of dropping product line C because it is reporting a loss. How would you advise Ames Corp and why?

Question 2: Janet Bakery is considering replacing the convection oven with a new oven. Information related to new and old oven follows:

                                          Old Oven                        New Oven

Original Cost                             21000                        40000

Accumulated Depreciation              6000

Book Value                             15000

Current Disposal value                 10000

Installation cost                           2000

Annual Operating Costs                  12000                          5000

Useful life                                           7                             5

Current age                                         2

Terminal disposal value                         0                           0

How would you advice Janet Bakery if the tax rate is 40% and the interest rate is 6%

Reference no: EM132527609

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