Reference no: EM131295586
Gates Inc. manufactures rubber hoses for automobile engines. There are three products to consider:
Lower Upper Air
Radiator Radiator Conditioning
Hoses Hoses Hoses
Sales: $200,000 $1,000,000 $800,000
COGS:
Variable costs $120,000 $440,000 $400,000
Fixed costs 40,000 240,000 160,000
Gross Profit: $ 40,000 $320,000 $240,000
Operating Expenses
Variable Exp. $ 50,000 $180,000 $120,000
Fixed Expenses 12,000 50,000 40,000
Total Op. Exp.: $ 62,000 $ 230,000 $160,000
Income (Loss)
from operations: $(22,000) $80,000 $ 80,000
Assume that all fixed costs given above are common fixed costs. Management is considering eliminating the Lower Radiator Hose product line, since it is showing a negative amount of Net Income.
1. Required: Should the Lower Radiator Hose product line be discontinued? Why or why not? Please show your computations.
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