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Question - Pharoah Toys' management is considering eliminating product A, which has been showing a loss for several years. The company's annual income statement, is as follows:
A
B
C
Total
Sales
$2,295,000
$1,408,000
$1,813,500
$5,516,500
Variable expenses
1,608,000
601,300
1,099,100
3,308,400
Contribution margin
$687,000
$806,700
$714,400
$2,208,100
Advertising expense
$611,000
$430,000
$520,000
$1,561,000
Depreciation expense
16,500
10,300
20,400
47,200
Corporate expenses
90,800
80,500
105,700
277,000
Total fixed expenses
$718,300
$520,800
$646,100
$1,885,200
Operating income
$(31,300)
$285,900
$68,300
$322,900
Advertising expense - Specific to each product.
Depreciation expense - Specific to each product; no other use available, no resale value.
Corporate expenses - Allocated based on number of employees.
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