Reference no: EM132789727
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:
Thalassines Kataskeves, S.A. Income Statement-Bilge Pump For the Quarter Ended March 31
Sales $470,000
Variable expenses: Variable manufacturing expenses $128,000
Sales commissions 51,000
Shipping 24,000
Total variable expenses 203,000
Contribution margin 267,000
Fixed expenses: Advertising (for the bilge pump product line) 24,000
Depreciation of equipment (no resale value) 119,000
General factory overhead 39,000*
Salary of product-line manager 129,000
Insurance on inventories 13,000
Purchasing department 43,000†
Total fixed expenses 367,000
Net operating loss $(100,000)
*Common costs allocated on the basis of machine-hours.
†Common costs allocated on the basis of sales dollars.
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 - What is the financial advantage (disadvantage) of discontinuing the bilge pump product line?
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